The IRS changed the rules in 1997 that stated you had to sell your residence and buy another house within 2 years. This rule no longer applies. Now the IRS doesn’t care what you do with your money when you sell.
Under the newest changes, you must have lived in your previous home for at least 2 out of the last 5 years. If, however, you rented your house out during your ownership, the situation gets more complicated and you should consult a tax expert.
A single person may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Certain exceptions exist for uniformed personnel, owners that lived in a nursing home, experienced divorce, or death.
There are a few misconceptions and avenues you can tad advantage of that I'd like to clear up.
Q: What if it wasn't my primary residence... Can I still avoid capital gains?
You can avoid having to immediately pay capital gains tax selling an investment property through doing a 1031 exchange. To qualify you must purchase another investment property of equal or greater value than your current property. Use the gains from the previous property sale to purchase the new property. Also, the new property must be considered "like-kind", which basically just means it's used for a similar type of investment. For example, if you're selling a house, you must buy another house. If you're selling a retail commercial building, you must buy another retail commercial building. There are some timing factors and logistical measures you need to be aware of that aren't very complicated but you will find helpful to get some guidance on. For help or questions, just contact our office. We would be glad to walk you through a purchase involving a 1031 exchange.
Q: Can I claim a capital loss if I lose money on the sale of my home?
A: Unfortunately, no
You must report and pay tax on unexempt capital gains from the sale of your personal residence, but you can never claim a capital loss on the sale of a personal residence. For some reason, the government allows deductions on certain capital losses on investment property, but not on personal use property. The good news is that you're on the right website to help avoid losses. Our track record shows that we sell houses for considerably more than the average agent, and have many times set a new record price for highest sale in a subdivision.
Q: Are moving expenses always deductible?
A: Yes sometimes, but not always
You can only deduct moving expenses that are work-related under certain strict conditions. If you are moving for purely personal reasons, they are never deductible. If your company is relocating you, then you should take a closer look to see if your moving expenses are deductible. A few things to consider - it really helps if your job move and house move are within 1 year of each other, and you're moving at least 50 miles away. If you are self-employed or have any kind of part-time or limited employment, the rules get a little sticky. You should consult a tax advisor to get more details under these circumstances.
Have more tax questions? Just give us a call or contact us any time. We would love the opportunity to serve you.