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Drats, when they demolished the house did they live on site ? I know its something like 2 years out of last 5 so if they moved to a rental house or something maybe that caused issue ?
Quote:
Originally Posted by jackmichigan
I'm sorry to have to give you some bad news, but I found a case which calls into question your assumption that your living on the PROPERTY--but not in the DWELLING--counts towards the 2-year time period for excluding the capital gain from your income taxes. In the case that I found, the IRS held that a couple who demolished their house, only to build a new house in it's place, did not then qualify for an exclusion when they sold the newly-constructed house before living in it for two years, even though they had lived on the property for a number of years. So...unless you can find some other ruling, it seems that you will need to actually live in the dwelling for two years in order to gain the full exclusion. One loophole might be that if you take a job which is more than 50 miles further than your present commute, then you may be eligible for a partial exclusion if you sell before the two-year time period.
This seems to confirm my previously-raised concern that merely living on the property might not count towards the 2-year residency requirement.
EDIT: In reading further about the Gates case, it seems that the attorneys failed to make some important arguments which may have helped, but that still puts you in a position of needing to justify your claim of an exclusion prior to living in the dwelling for 2 years. The court noted that the definitions in the law were not unambiguous (e.g. "property","primary residence", etc.), but it would be a challenge to get a different ruling from the IRS about your situation without taking it to court. Tackling the IRS is not something that I would recommend for the faint of heart.
Again, sorry for the bad news but it's better that you know about these potential problems before doing something that could get you into hot water.
Drats, when they demolished the house did they live on site ? I know its something like 2 years out of last 5 so if they moved to a rental house or something maybe that caused issue ?
It doesn't matter whether they lived on-site while the house was being built because they had lived there for 10 years previously. Living off-site was not the issue. The IRS held that they hadn't lived in the new dwelling for 2 of the past 5 years, even though they had lived at that property for many years. That was my concern initially. The IRS usually takes positions in favor of collecting more tax, absent clear legal guidance otherwise.
Now, that case was over 10 years old. Perhaps another case has overturned that IRS decision but I haven't found anything in that regard. The IRS view in that case was rather narrow. They knew that the owners had lived at that property for many years but they took the position that the primary residence referred to the actual dwelling and not the overall property. There are good arguments against the position that the IRS took in that case, but I wouldn't want to be the one to test them in court.
Just a quick update (in case anyone wondered lol). My wife wants to stay put so bad that she is going back into the I.T. field as a secondary income source, were also in the house now which has greatly helped my mood.
Still feel fairly isolated but I'd be quite the ******* to push a move now until we atleast see what her income will be.
Anyway thanks all for the advice/wisdom again. Have a great Sunday
I had posted up in the retirement about missing urban life, (we moved from Philly to a very popular lake in northern Michigan). Heres our situation and my dilemma.
We sold our home in Philly and made a $250,000 profit. We bought a vacant lot on lakefront for $625,000 and we're building a 2600 sq foot home and framed it ourselves. I put $130,000 down on the lot and used the remaining $120,000 to start the build leaving us with a $500,000 construction/land loan. We didnt have enough to finish so we pulled another $150,000 from bank with an interest rate of 4.75 thats locked in for 7 years. Overall we will owe roughly $650,000 and house (when done) will be worth 1.15-1.2 mil.
We owe about $50,000 in credit cards/unsecured debt.
Income wise I bring in month $5000 pension, $3200 new job and wife does about $3500. New mortgage payment will be upwards of $4000 because of rates/lake taxes.
I'm inclined to flip the place and buy cash out somewhere thats not on a lake. Wife is saying it will be a terrible move as that lakefront property will always outpace other homes.
My first dilemma is my feel of isolation (being outside of a city) seems to want me to push to sell the place, second dilemma is I cant stand the idea of a $4000 mortgage until I'm in my 80's.
Am I crazy to want to sell a house with this possible equity at the risk of never living it down with the wife.
Sir, the BEST advice to you is "Happy wife, happy life!!" GOOD LUCK with whatever decision you make!
Sadly no, everything is pretty costly, or way too small. I'll see how she likes the new job, but either way I have roughly 1.5 years before I can sell so I dont take tax hit
Quote:
Originally Posted by 1AngryTaxPayer
Is there something less costly near you still on the lake? If worst comes you could downgrade. Not the best time to sell though.
Just a quick update (in case anyone wondered lol). My wife wants to stay put so bad that she is going back into the I.T. field as a secondary income source, were also in the house now which has greatly helped my mood.
Still feel fairly isolated but I'd be quite the ******* to push a move now until we atleast see what her income will be.
Anyway thanks all for the advice/wisdom again. Have a great Sunday
I bet that your mood will improve even more once summer rolls around. You can't beat northern Michigan in the summertime.
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