someone told us that as soon as we sell our home we have to do a capital gain form for taxes
I thought you just did it on your next years return who is correct
I sell my house last year in July 2016, do i have to include this in my tax
You need to report it on your 2016 tax return (prepared this year.)
If reported, it is reported for the tax return of the year of sale. However, it may not even be reported.
For the sale of a residence, up to $250,000 ($500,000 on a joint return where you both lived in the residence) of gain can be excluded from income if you lived in and owned the house for two of the last five years.
(You may have a smaller exclusion if the property was used as a rental during the five year period, and you may have income from recapture of depreciation if you claimed an office in the home deduction for the home.)
If you work through the interview on sale of a residence, Turbotax will compute the exclusion. Look under the wages and income tab for less common income, then sale of home.
I would only report the sale if:
The gain exceeds the amounts that are exempt from tax, or
You received a Form 1099-S from the closing agent.
A closing agent can get an affidavit or statement from you that the sale meets the requirements for exclusion and, if so, not send a Form 1099-S reporting the sale. If the gain is fully excludible and you don't get a Form 1099-S, there is no reason to report the sale on your tax return.
Very helpful!!! Thank you so much!!
My question is house selling should be within 5 years of ownership to avoid a capital gain tax??
For example, if house is owned from 2011 to 2017( 6 years) and sold on 2017, is there a capital gain tax??
If house is owned for 5 years and owner lived for 2 years with 3 years rent-out (move in and out), is there a capital gain tax?
I heard someone and tax accountant say I'm eligible for non capital gain tax but other says different.
I would like to figure out if there is capital gain tax or not ...and how to calculate...
Home purchased May 2011
Lived until Nov 2012 (18 months)
Rented out Nov 2012 to Dec 1st 2015 ( 3 years)
Owner moves in on Dec 5th 2015 until house is sold
Loan amount $115,000
Remodeling $50,000
Agent fee 5-6% (don't know yet, average)
and what other fees or taxes in CA ??
My agent told me she can sell it within 2 months or possibly make to sell on May 2016 If needed for avoidance of capital gain...
She, agent doesn't know about this rule, but I see you point is that, If 1099-s is given, there is a capital gain tax and if not given, 0 capital gain tax...
Thank you for reading and looking forward to someone's answer....advice...
One more thing (sorry!) in response to one of your followup questions, you don't lose the exclusion if you own the house longer than 5 years. 2 years ownership/2 years residency is the minimum, but you would certainly qualify if you lived there (as your main home) for as long as you want past the minimum.
the five year window ( look-back period ) starts from the date of closing and as mentioned above during this window, one of you ( you or your spouse, if married at the time of sale ) must have owned the prop for two years continously and both must have used the prop as your main home for a total of 730 days , in order to qualify for exlcusion of $250,000 of capital gain for each spouse ( if married ). The portion of the capital gain that is due to depreciations allowed , mut be first allocated to ordinary income and taxed at your marginal rate.
Opus 17, one more thing to point out so that it's clear. If, at any time, you have taken depreciation on the house, then no matter what, you WILL pay taxes on the recaptured depreciation. Recaptured depreciation is NOT excluded from taxation under any circumstances or scenario. So if the property was a rental, or you claimed a home office or business use of any part of the property, you have depreciation that you recapture on the sale, and pay tax on.
this recapture is because depreciation allowed would have sheltered an equal amount ot ordinary income from taxes and thus , must now be recaptured. Agreed with Carl
And remember that the rule is "allowed or allowable" depreciation. So if depreciation never claimed, but was allowed, you still must pay tax on the allowable depreciation recapture.
I'm so impressive how you answer me! I sincerely appreciate your kind and professional answer.
"Then on top of that, you will still probably pay some tax on the depreciation. When you rented the house you were entitled to take depreciation, and when you sell you have to pay that back (pay a recapture tax) if you sell the house for more than the depreciated value. "
-) I hired a rental manager and reported all taxable rental income during 3 years period. But If sold a house, I ought to pay this income again?
No, you don't pay tax on the rental income. But recapture is something different. I have to go out now, I will try and explain later if no one else does.
Also, my answer about excluding gain is probably wrong, and you will owe more tax than I thought. Some of us are talking about it and we will get back to you. Basically, the problem is that at some point, the IRS decided that if a taxpayer has a rental with a large capital gain, they should not be able to make it tax-free just by moving back in to it for 2 years before selling. (The tax break was created for homeowners not landlords.) So they made up some really complicated rules that I think are going to cause you a tax bite. But we are trying to figure it out and will update you when ready.
"you don't lose the exclusion if you own the house longer than 5 years. 2 years ownership/2 years residency is the minimum"
-) I finally understand! I'm so glad you are a lifesaver of me! I have a tax accountant but he is not willing to answer me in detail. I would like to do myself if I can...(but I can't) or get other accountant. But it is not easy since he has all my papers and worked for 3 years...
** So, with this one, I see 2 years ownership and 2 years residency to avoid a capitals gain tax..
Doesn't matter house ownes over 3 years or 10 years! But 2 years residency is needed! 🙂
Ownership residency test is already passed!
"long term capital gain and is usually taxed at 15%, or would be tax-free if you sell after May 2016"
-) ok, then I will try to sell From June 2016 and close out within 30-60 days. (Closing will be June 31st or July 31st 2016..l(hopefully, it works)
"Then on top of that, you will still probably pay some tax on the depreciation. When you rented the house you were entitled to take depreciation, and when you sell you have to pay that back (pay a recapture tax) if you sell the house for more than the depreciated value. "
-)What is a depreciated value?
-) even if I already reported all taxable rental income every year (for 3 years), when sold a house, I have to pay for depreciated tax ( is it same as a recapture tax?)
Sorry,..too many questions,.,,
Are you a tax accountant? How I can't say thank you enough!!
"Let's say the purchase price was 200,000. Three years of depreciation is roughly 20,000. So your depreciated basis is 180,000. Then let's say you sell for $400,000. When you subtract your remodel costs, your sales expenses, and your depreciated basis, you would have a gain of $146,000. The first $20,000 is recaptured depreciation and will be taxed at 25%, regardless of how long you lived there. The remaining $126,000 is long term capital gain and is usually taxed at 15%, or would be tax-free if you sell after May 2016."
-) if applying to my case...
Purchased $249,900
Depreciation (10% ?) $24,990
*Deprecation basis $22,4910
Sold home $450,000 (supposed)
*Agent fee 6% $27,000
*Remodeling expense $50,000
* First $24,990 is recaptured so it's 25% regardless of residency -) $6,247.50
Then remaining gain is $141,842.50
Depends on 2 years minimum residency with 2 years minimum ownership,
$141,842.50 can be tax free or taxable 15% ($21,276)
Is my calculating correct? Doesn't have to be accurate , I just would like to see how much I need to be ready to pay tax or not..
Hope my calculation is right.
Before getting your professional help, I just thought if I don't quality , my gain tax would be over $50,000...now I see it can be $21000 less or more or not.
Tomorrow is thanksgiving.
God bless you and your family.
I'm so astonished and joyful to know how it goes!
OK, @pinkjelly1234
Part 1 on depreciation.
Depreciation is a deduction you can take for the "used up" value of a capital asset (usually, tangible property with an expected life more than one year). Let's start with a baker who buys an oven for $5000. That's not deductible all at once, but since the oven loses value over time as it becomes used. That's depreciation. In this case, the baker can take a depreciation expense over 5 years, or $1000 per year.
Now, you also need to know about cost basis. The cost basis of an item is the amount of already-taxed money you spend to acquire it. The cost basis of the oven is $5000 because the baker used after tax money to buy it. But each year that he takes a $1000 depreciation deduction, he is reducing his cost basis because some of the purchase was now made with tax-free money.
Whenever you sell something for more than your basis, you owe gains tax. If you buy a baseball card for $1 and sell it for $100, you pay tax on $99 because you already paid tax on $1. For the baker, since he has been taking tax deductions for depreciation, he has to pay tax if he sells the oven for more than his basis at the time of the sale. In year 4, the baker has deducted $4000 of depreciation, and the cost basis of the oven is $1000. If he sells it to a competitor for $1500, he owes tax on the $500, that is "recaptured depreciation."
With a house, land doesn't get used up, but the structure does. Let's say that for your house purchased for 249K, that 49K was the value of the land and the house was 200K. (You may not know the exact number but your tax accountant should, or you need a new tax accountant.) Houses depreciate over 27-1/2 years. So for each year that you rented it, you can deduct $7272 as a depreciation expense. You pay tax on your net rental income, so if you rented it for $2000 per month, you take the gross income, subtract expenses like insurance, taxes and maintenance and the property manager fee, also deduct depreciation, then pay tax on the net income. The depreciation reduces your taxable rental income. Since it's like taking tax-free money out of the house, it reduces your cost basis. After three years of rental, your cost basis is $249,000 minus (3 x $7272) = $227,184. If you sell for more than the cost basis, you have to pay tax on the gain that is due to depreciation. So whatever happens to the rest of the gains, the first $21,816 is depreciation recapture taxed at 25%.
This has to be paid if you were entitled to deduct depreciation, even if you did not actually deduct it. If your tax accountant did not deduct depreciation, you may need a new accountant (who can also fix the error and get you some of the benefit of the depreciation if you missed it before). Taking depreciation on rental property is always going to be a deduction when you rent that has to be paid back when you sell, but that's the way it works.
Hope the helps. Part 2 on what happens to the rest of the gain is coming soon.
@pinkjelly1234
Part 2 on capital gains exclusion.
To qualify for the exclusion, you have to own the home at least 2 years, live in it as your main home at least 2 of the past 5 years, and not have used the exclusion within 2 years on a different house. The two years lived there do not have to be consecutive, so its really 24 months of 60 months. Your gain calculation is basically correct,
Purchased $249,900
Depreciation $21,816
Remodeling expense $50,000
=Adjusted cost basis of $278,084.
Selling price $450,000
Sales expenses $27,000
=Amount realized from sale $423,000
Gains = $144,916
First $21,816 is depreciation recapture taxed at 25%
Remaining $123,100 treated as described further below.
If you sell (closing date) before May 2016, you won't have 24 months of living there as your main home, and the $123,100 will be taxed as long term capital gains (15% for most people but with some exceptions).
If you close after having lived there 24 months of the 60 months just before the close, you can exclude SOME of the gains from tax. But now unfortunately, you are running into an IRS brick wall called "non-qualified use." The IRS or maybe Congress decided at some point that the 250,000 exclusion was a generous benefit intended for homeowners but not landlords, and they did not want landlords excluding their gain from long ownership by moving into the property for 2 years before selling. So they created some very complicated rules. The whole point is that you can only exclude the gain that came from the time you lived in the home, not the gain that came from the time you rented it out. IRS publication 523 describes them, but actually the 2013 version is much easier to understand than the 2014 version, see links below. Basically, the time that you rented the house is "non-qualified" for the tax break. If you close in May 2016, then you have 24 qualifying months and 60 months of ownership, so only 24/60 (40%) of the gain is excluded, and you pay tax on the rest. If you close in July then you will have 26 months of qualifying use and 62 months of total ownership so 41.9% of the gain is excluded.
So if you close in July, the first $21,816 is taxed at 25%,
then $123,100 x 0.419 = $51,579 is tax-free, and the remaining $71,521 is taxed at 15% long term cap gain. Your total tax bill might be $16,182.
Note that there are probably more closing expenses that you can deduct from your sales price, like any surveys and inspections you pay for, and there are a number of closing costs from the original purchase that you can add to your cost basis, like recording fees, inspections, your attorney, title insurance, and so on, and those will all reduce your taxable gain, so it will pay to document them all. It's described in publication 523. Also note that when you calculate your percentage of non-qualifying gain, you actually count days rather than months, so it will be something like 5535 days of ownership against 782 days of qualifying use (residency).
If you pay an accountant they should do all this for you. Good luck.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-prior/p523--2013.pdf">https://www.irs.gov/pub/irs-prior/p523--2013.pdf</a>
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-prior/p523.pdf">https://www.irs.gov/pub/irs-prior/p523.pdf</a> (2014 version)
I corrected a small typo: sales expenses reduce your amount realized, and closing costs when you bought the house *increase* your cost basis. These expenses work together to reduce your gain, so take the time to document them.
@Opus 17 : You beat me to it. 🙂 I just posted a similar (but not nearly as detailed) answer for pinkjelly on another post.
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/2923423-question-about-california-capital-gain-tax-on-home-selling">https://ttlc.intuit.com/questions/2923423-question-about-california-capital-gain-tax-on-home-selling</a>
I didn't realize the same taxpayer had two conversations going.
I think there is a third one somewhere that Hal_Al has been answering.
God bless all for you guys! I'm printing these answers to study myself for better figure!
I will also review all links you guys provide me..
Tax figure is never easy...you are so genius! How can it be all understood?
Thank you so much....I think I got to sell sooner....so I may pay for capital gain tax....
I am not sure did I MENTION about rental income??
Anyone...please review my case for help......
My house is on the market and someone is interested...
How much would capital gain tax be?? Approx?? Please help me......
My escrow says 4/26/2011 closing
Local record for purchase says 5/26/2011 (Is this one actual purchase date?)
Lived there until Oct 2012 (Owner occupied)
Rented out Nov 2012 until Nov 30th 2015 (Rented out)
Moved in Dec 5th 2015 to current (Owner occupied)
Estimated sales price: $450,000
Loan amount: $125.000
Home improvement and repair: $60,000
Rental income/loss: * This is paid over personal income, should I add it when sold home???
Home ownership fee: $255 monthly