@Candymancan wrote:
My point is that we would have sold it sooner rather than later if we could have and now we're going to pay a ridiculous amount of tax on it as well as I'm screwed now because I already contributed my to my Roth IRA and this will put us over the income limit - which was not my fault. No planning would have avoided that. We expected to sell the house for $220K and by the time we had everything done and go to go, the market had it at $260K. What a wonderful stupid country we live in. Getting penalized now for trying to save for retirement and now "we make too much". Please we're no where near rich but the IRS thinks I am...
@Candymancan
The fact that you were delayed in selling the house has no bearing on determining the fair market value or the gain. But you are not being penalized. You are actually coming out ahead. You got $40,000 more for the house than you expected, and maybe a total profit of $55,000 if the Zillow estimate is accurate. You only pay tax on the profit that you actually received. Some of that profit goes to pay the tax, but you get to keep the rest. And you are paying tax at a lower rate because the profit on the house is a long-term capital gain.
For 2022 the top of the AGI phase-out range for making a Roth IRA contribution is $214,000 for married filing jointly. If your income is over $214,000 you may not be rich, but you are doing fairly well. Yes, your AGI includes the profit from selling the house, but that is additional income that you actually received. You are not paying tax on phantom income. It's like getting a big bonus from your job, but with the additional benefit of the lower tax rate.
If you did contribute more to your Roth IRA than you are allowed to, you have until next April 15 to withdraw the excess contribution (including earnings) to avoid any penalty. Contact the IRA custodian about withdrawing the excess. If your income is lower next year, you will be able to continue contributing to your Roth IRA.
