If I sell my home because I got a new job and needed to move closer will I have to pay capital gains? I have lived in my primary address for 18 months

[SuzanneG8]

Hello,

Does this apply if you left your last job & opened a business that you work at that is 50 miles or more away?  We have owned our home for 15 months.

Thank you

[Opus 17]

The rules are spelled out exactly in the publication previously mentioned.  Did you read the entire discussion before you posted?

https://www.irs.gov/pub/irs-pdf/p523.pdf

You can qualify for a partial exclusion if you moved due to a "hardship".  The IRS provides several specific definitions of qualifying hardships, so-called safe harbors.  If you meet the exact rules in one of the safe harbors, you qualify.  If you don't meet a safe harbor, you are not necessarily prevented from using the partial exclusion, but you will not receive the benefit of the doubt if audited and you will have to strongly prove your case.

The "moved for a job rule" says specifically this:

• You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location. For example, your old work location was 15 miles from the home and your new work location is 65 miles from the home.

So not merely 50 miles away, but 50 miles farther than the old job (making your commute 50 miles longer than it was before.)

[prouse54]

I lived in my home in Idaho for 7 months and relocated to Texas for a new job.  I made $125,000 gain not counting $12,000 remodel, $ 30,00  escrow fees and $3,000 moving fees.   Will I have to pay capital gain? 

[Opus 17]

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@prouse54 wrote:

I lived in my home in Idaho for 7 months and relocated to Texas for a new job.  I made $125,000 gain not counting $12,000 remodel, $ 30,00  escrow fees and $3,000 moving fees.   Will I have to pay capital gain? 

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Yes.  You need to review publication 523 to determine what your gain actually is.

https://www.irs.gov/pub/irs-pdf/p523.pdf

Your gain is the difference between the selling price and your adjusted cost basis.  The remodel is probably an adjustment that increases your basis, so your gain might only be $113,000.  Moving expenses are not tax deductible unless you are in the military, and they are never part of the capital gains calculation (they would be deducted on a different form if your are in the military).  Certain closing costs can be used as adjustments to basis, you will need to look at the list in publication 523.  Most of your escrow fees and closing costs are not basis adjustments.

If you are single or head of household (not filing as married filing jointly), your maximum capital gains exclusion is $250,000.  Since you only lived in the home 7 months out of the 2 year or 24 month requirement, you can only exclude 7/24 of that amount.  That's 29%, so 29% of $250,000 is $72,916.  That means that after you determine your adjusted cost basis and know the actual gain amount, the first $72,916 is tax-free and anything over that is a short-term capital gain that will be taxed as ordinary income.

Turbotax will actually figure it to the day; you will need to give the date you bought the house, the date you sold it, the date you moved in, and the date you sold your previous house.  The partial exclusion percentage is determined by the shortest time:

• the number of days you owned the home
• the number of days you lived in the home as your main home
• the number of days since the last time you sold a home

[gopalv1957]

We are moving to Texas this month end and plan to sell the current primary residence after living here for nearly 26 months and we four (me my wife  and my son and his wife ) jointly own as Joint Tenancy on the title in CA.  However we also sold the previous property after living there for more than 4 years  on 23rd December 2020. The current move and anticipated current property sale is because of job relocation of my son to Dalls TX. If we make capital gains out of the current property sale, can we exclude full amount allowed for capital gains upto $500,000 per couple or only partial exclusion is allowed and if so what is the formula? The move is from Fremont,CA to Plano,Texas. Since I am retired and on social security, will be moving along with my son and have been living with him for the past five years. Though we met the primary residence requirement but I need clarity regarding the effect of previous property sale within the last 24 months for capital gain exclusion amount.

Any advise would be appreciated.

Thanks

Venkatraman Gopalakrishnan

[Opus 17]

The answer is contained in publication 523 on page 6, under "Does Your Home Qualify for a Partial Exclusion of Gain?" https://www.irs.gov/pub/irs-pdf/p523.pdf

You fail the 2 year look-back rule to claim the full exclusion, because even though you lived in the home more than 2 years, you used the exclusion on the previous home only 9 months ago.  Because you are moving for a job change of one of the co-owners, you would qualify for a partial exclusion.  

The partial exclusion percentage is determined by the shortest time:

• the number of days you owned the home
• the number of days you lived in the home as your main home
• the number of days since the last time you sold a home and used the exclusion

Turbotax will actually figure it to the day; you will need to give the date you bought the house, the date you sold it, the date you moved in, and the date you sold your previous house.  

Note that since the home is co-owned by two married couples, the capital gains are reported 50/50 and each couple is entitled to a partial exclusion.  Since you last used the exclusion 9 months ago, your partial exclusion will be approximately 9/24th, or 37.5% of the $500,000 limit, which is $187,500.  Each couple would report half the cost basis, half the selling price, and half the capital gain.

Also note a couple of factors that will be peculiar to your situation.

1. The exclusion is calculated separately for each owner or married couple.  You sold your previous home 9 months ago, so you fail the look-back test and only qualify for a partial exclusion now.   However, suppose your son and his wife were not owners of that previous property and did not use their exclusion on a previous home in the past 2 years.  They would qualify for a full exclusion on their half of the gain, while you qualify for a partial exclusion.  On the other hand, if your son didn't move in with you until 5 months ago, they would only qualify for a 5/24ths exclusion on their half, or if your son moved out early to take the new job, he and his wife would get a smaller exclusion.  This is all because the exclusion is figured separately based on each person's shortest period time of owned, lived in, or previous exclusion.  

2. Suppose you have a very large exclusion on this home that is not covered by your partial exclusion limit, but you had a small gain on the sale of the previous home in 2020.  You could declare this upcoming sale to be the sale you will use the full exclusion on, and then file an amended 2020 return to remove the exclusion and pay the gains tax on that prior sale.  

[suanlacai]

My situation is similar. I have lived in my current home for 1.5 years. Now I got a new job offer in another state and decide to move there. But I would like to rent my current home for next 3 months (until Spring next year) when I decide to sell it. Would it disqualify me from using the exemption? Basically can I rent my home after job change at all before sale?

[Opus 17]

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@suanlacai wrote:

My situation is similar. I have lived in my current home for 1.5 years. Now I got a new job offer in another state and decide to move there. But I would like to rent my current home for next 3 months (until Spring next year) when I decide to sell it. Would it disqualify me from using the exemption? Basically can I rent my home after job change at all before sale?

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There is no requirement that you sell your home within a certain time of the life-event that qualified you for the partial exclusion.  You could still claim the partial exclusion if you rent the home for a few months.  I think you are more likely to have trouble finding a tenant if you tell them you plan to sell in just a few months.  You would want to have any lease agreement reviewed by an attorney or real estate professional to make sure that having tenants does not get in the way of the sale.

[Mike9241]

you might have a problem finding a tenant willing to rent for only 3 months. most likely they would want a 1 year, maybe longer, or at least an option to renew.  any purchaser of the property would likely be bound by the lease. 

[tagteam]

Regardless of whether or not a tenant is found, the owner could still deduct typical rental expenses (e.g., utilities, repairs, maintenance) provided the home is available for rent.

[gopalv1957]

Thanks for the response. Since there are four owners of the house (myself and my wife, my son and his wife  make up four owners and each couple file annual IRS return as joint owner and live in the same property as joint tenancy )  do each couple get exclustion upto maximum $500000 and each couple would calculate partial exclusion amount based on $500K maximum exclusion amount after dividing the gain equally between the couple ?

Request you to kindly clarify. Thanks again for the help in advance.

Thanks

Venkatraman Gopalakrishnan

[Mike9241]

The current move and anticipated current property sale is because of job relocation of my son to Dallas TX. the full home sale exclusion is only available once every 2 years. you say you sold a previous house in 2020 so since the job change is the reason for their move they would be entitled to a reduced exclusion.  based on the info you supplied, you would not qualify for the home sale exclusion. 

[Brandon G J]

Do I have to use my entire gain on a purchase in my new area? 

Example: Made $90k on a house in a year, single, and moving for a job from UT to AZ. Do I have to spend the $90k on a house in AZ or can I just move there and rent and still avoid C.G.?

If I do have to spend all $90k to avoid capital gains can I use some of that for repairs/upgrades or does it all have to be for the down payment?

Thanks in advance!

[DoninGA]

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@Brandon G J wrote:

Do I have to use my entire gain on a purchase in my new area? 

Example: Made $90k on a house in a year, single, and moving for a job from UT to AZ. Do I have to spend the $90k on a house in AZ or can I just move there and rent and still avoid C.G.?

If I do have to spend all $90k to avoid capital gains can I use some of that for repairs/upgrades or does it all have to be for the down payment?

Thanks in advance!

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The option to avoid capital gains on the sale of personal residence by purchasing another personal residence for the same or higher selling price of the first residence was removed from the tax code in 1997.

If you are selling your personal residence because of a work- related  move then you may be able for a partial exclusion of any gain on the sale.

Go to this IRS Publication 523 Selling Your Home on page 6 for information on a work-related move - https://www.irs.gov/pub/irs-pdf/p523.pdf#page=6

[Opus 17]

@Brandon G J 

The sale and the purchase are completely separate transactions that have no influence over one another.

If you lived in the prior home for at least two years, you probably qualify to exclude the first $250,000 of capital gains from taxation. Since your gain is less than that amount, you should not have to pay any gains tax on the sale of your personal home.

Then, the purchase of the new home is a separate transaction that has nothing to do with it is not influenced by the sale of the prior home.