Hello dear readers. I’m Andrew Keshner and I’m a MarketWatch tax reporter. I write about controversies, open-ended questions, and tax best practices. For the purposes of this new column, that also makes me a ‘Tax Guy’.
I am not an accountant. I am a journalist who will try to help you find answers to your questions and try to explain on this site what I have learned. That sounds simple, but it can be complicated in practice. And that’s why I’m here.
When I bring up this issue at parties, one of two things happens: the discussion of “taxes” either leads to an obvious resignation or it sparks a fiery curiosity about how a group is to be completed. the extremely specific scenario of a person dealing with IRS rules.
It doesn’t have to be like that. And without further advertising…
To the tax guy,
I understand that any gain from the sale of real estate will not be taxed if it is used to purchase another home within three years. My question is what if I buy another home and then sell my existing home to pay off my new home loan?
Does the order of purchase matter?
Dear Mulling the Market,
I will let you down gently. You say that real estate profits are tax deductible if they are used to buy a home within three years, but the accountant tells me that’s actually an old rule and it’s no longer on the books. So you’re out of luck.
For buying and selling: You hope to pocket the profits, minimize your tax liability, and preserve all your memories. The order of the purchase and sale does not matter for tax purposes. You don’t have to rush to buy another home.
“The current exclusion of the main residency benefit Not Jeffrey Olson, a partner at Carr, Riggs & Ingram in Atlanta who specializes in real estate-related tax matters, said it requires taxpayers to buy a replacement home.
The IRS will allow you to keep the profits from the sale of your home without capital gains taxes, with certain conditions. You must have owned the home for at least two years and lived there for two of the last five years (but they don’t have to be continuous).
The first $250,000 of profits are excluded from capital gains tax for individuals and married couples filing separately, according to IRS rules. Capital gains exclusion increases to $500,000 for a married couple applying jointly.
For a couple filing jointly, only one spouse must own it. But each spouse must meet usage requirements. Olson notes that two years of ownership and use is not a continuous period.
“Subsequent purchases,” said Rob Seltzer, president of Los Angeles-based Seltzer Business Management, where he works with clients on their tax issues, including real estate transactions. does not affect the calculation.
“The only purchase that matters is buying the house you’re selling,” he added. In other words, you don’t have to worry about any kind of rollover requirement, but you do need to know the other eligibility rules to exclude capital gains.
Wrinkles in the tax code
That said, there are tax code issues if you’ve rented for a period of 5 years, converted part of your residence into a home office, or renovated and claimed a deduction for depreciation when Renovations.
Selling your home gets more complicated. House prices are falling but still at a high level. Meanwhile, the mortgage interest rate is go up and it takes longer to sell the house. Homebuyer sentiment has recently hit a all-time low.
People usually sell first, then buy. However, if you can afford it, you can buy a new home, then sell your existing home and apply the proceeds to the mortgage on the home you just bought.
Uncle Sam’s tax laws don’t force you to stick to a timeline for buying and selling in a market that has become tougher. Just don’t put yourself under any unnecessary pressure in the interim.
Have a tax question? Write to me at: [email protected]
Thanks for reading. I want to help you think more broadly about the issues that affect your taxes. I’m not offering tax advice, just an attempt to consider what the spiral of tax rules and economic conditions can mean for your wallet.
I’m here because readers are facing their taxes with an air of resignation. I understand you are not that tax. I used to be that guy. Beneath the jargon, think of your taxes like a maze – money in the end. Or a trap that you need to avoid.