Capital Gains on Real Estate - can someone please explain the calculation?
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Anonymous
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Hiya. I have questions relating to the sale of real estate that I'm hoping the smarties on this site can help me with, or point me to reputable online resources that I should read.
1) Selling our home (residence) - we are married. It is my understanding that a married couple can exclude up to $500K of capital gains from the sale of their primary residence. Let's say we bought the house for $200K 15 years ago. It could now sell for $800K. That's $600K more. So should expect to pay taxes on $100K? Or are there other costs we factor in? What if we put money into the house? What qualifies? Improvements? 2) Selling an investment property. We own a condo that we have rented for a several years. We are considering selling it so that we can buy a place elsewhere that we could hopefully (ultimately) use as a second home/vacation house. I understand we can do a 1031 exchange to avoid capital gains. Few questions: so long at the new property we buy sells for at least as much as the condo sold, we're ok, right? We have to close on the new property within 180 days of selling the condo, right? What if we find the new property first? Can we bid on it and even close on it before we sell the condo? How does that reverse order work? When we purchase the new property, do we have to treat it as a rental/investment property for a certain period of time? Or are we allowed to treat it as a vacation home and still avoid capital gains? And finally, does the original cost of the condo factor in some way or only if it had been our primary residence? Any other tips on 1031 exchanges? Many thanks. |
Anonymous
Anonymous
You have ALOT of questions. I will try to help, but probably won't catch all of them. For #1. Yes, you will pay capital gains on the difference between your cost basis and the sales price. However, if you made capital improvements (i.e. put on a deck, renovated a bathroom, added granite counters -- actual improvements, not just maintenance, -- then you can add those expenses to your cost basis, thereby reducing your taxable gain.) For #2. I have done a 1031 exchange that we later moved into and converted to our primary residence. But, I am not an expert. The details on how to do this have changed since we did the exchange and conversion, so I'll point you in the right direction for info. We SOLD the investment property first, then the proceeds were held in escrow. This is very important.... that you not have access to those funds. Then we bought the new property. There used to be no hard and fast timeline for how long you have to rent out the replacement property. Now, I am seeing the reports that you have to hold it for 24 mos. https://apiexchange.com/what-is-a-1031-exchange/ https://www.cwscapital.com/insights/how-to-convert-1031-exchange-rental-property-to-primary-residence/ ( there is a way to buy the replacement property first ) Very strict rules to follow. Proceed with caution. See below: http://www.1031exchange.com/reverse/ https://firstexchange.com/reverse-1031-exchanges https://www.cwscapital.com/insights/the-reverse-1031-exchange-timeline-9-steps-to-a-successful-transaction/ |
Anonymous
Thank you for these great resources. |
Anonymous
| Are you buying a new house with the gains? I think if you do so within 18 months you don’t need to worry about it. |
Anonymous
Your information is over twenty years old. https://www.irs.gov/pub/irs-prior/p523--1997.pdf |
Anonymous
| Did the tax bill that passed this year make any significant changes to the way capital gains are handled? |