Do I have to pay capital gain tax if I lived in my property for less than a year and I have around 50k in equity after closing cost..., selling reason is due to crime?

[jcaceres77]

I bought my house in December 2019 for 297k and just accepted an offer yesterday for 365k
I have around 50k in equity after closing cost fees and real state fees. If I put 40k to the down payment of the new property and the rest of the money I use it to buy appliances. Do I have to pay capital gain tax for the 10k or the 40k, since I didn’t live in the House for 2 years or more in the last 5 years? I lived in the house for 11 months and selling reason is due to crime.

[tagteam · Accepted solution]

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@jcaceres77 wrote:
I lived in the house for 11 months and selling reason is due to crime.

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The best result (which is likely only a slight possibility) would be a partial exclusion of gain from the sale and it would be based upon unforeseeable events and/or other facts and circumstances as delineated in the relevant section of IRS publication at the link below.

See https://www.irs.gov/publications/p523#en_US_2019_publink100073099

[AmeliesUncle]

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@jcaceres77 wrote:
I lived in the house for 11 months and selling reason is due to crime.

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Were you a victim of a crime from living in that area?  If so, you can probably not pay taxes on the gain.  There are several Private Letter Rulings from the IRS for similar circumstances. 

However, if you are moving just because of general crime in the area (you have NOT been a victim), then it seems much less likely you would qualify for an exclusion unless you can show that the general crime in the area has had a significant negative impact on your life.  It that is the case, would need to pay tax on the gain.

[VolvoGirl]

By the way the Capital Gain is not your equity.  Simply selling price - purchase price (cost) + improvements.  So 365-297= 68,000.   And it no longer matters what you do with the proceeds or profit, like putting it into another house.  Rolling over the proceeds stopped back in 1997.

[jcaceres77]

Thank you for your reply back.

-My wife's laptop was stolen from her car. (I have the police report of that)

-There was a drive-by gunshot in front of my House, Thanks God nobody was hurt. (Also have the police report that)

Are these enough proof?

[Anonymous]

your gain is determined by selling price less cost. equity has nothing to do with the gain. 

the $365k would be the selling price but you get to deduct selling costs such as title charges, brokerage commissions, etc. your cost is the $297k and you get to add any purchase costs such as title insurance, recording fees.    

you could get a partial exclusion using unforeseen circumstances 

one is IRS ltr rul 20601009

criminal activities in the neighborhood including assault and theft to taxpayer's son.  these can not be cited as precedent, they provide an idea of what the irs believes are unforeseen circumstances, 

normally I would advise seeing a tax pro in this situation, but the 2019 return is due 10/15/2020

[jtax]

Also it is worth doing the return to see if it matters. Depending upon other income you might well be in the 0% capital gains bracket and wind up paying no (or very little) federal tax on the gain. (state is a different matter). See https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates

About getting a special exception because of crime, I second that you need a tax attorney, very experienced CPA, or enrolled agent to determine if that applies to you and if so what you need to do. Personally I don't know anything about that. Getting a private letter ruling, for example, is time consuming and costly. Given that the deadline is in two days, I would suggest you file reporting the gain and paying the capital gains tax if any. Then seek out professional advice. You have (approximately) three years to file an amended return requested a refund.

[tagteam]

I concur with @jtax (and others) that reporting the gain and then seeking professional guidance is the best course of action in this matter.

I wanted to point out (as have others) that @jcaceres77 should be meticulous when calculating the basis and also the amount realized (i.e., gross selling price less selling expenses), in an attempt to minimize any gain (to the fullest possible extent).

Further, it should be noted that @jcaceres77, due to a holding period of a year or less, will not get the benefit of the long-term capital gains tax rate; any gain will be taxed at @jcaceres77's ordinary income tax rate.

[AmeliesUncle · Accepted solution]

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@jcaceres77 wrote:

Thank you for your reply back.

-My wife's laptop was stolen from her car. (I have the police report of that)

-There was a drive-by gunshot in front of my House, Thanks God nobody was hurt. (Also have the police report that)

Are these enough proof?

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In my opinion, there is no question about it.  You qualify for the "unforeseen circumstances" to get the Reduced Maximum Exclusion.  Two police reports (including a drive-by gunshot) in less than a year seems like a slam-dunk.

[SoManyQuestions2]

What would my tax situation look like if my ex spouse finally sold our Indiana marital home in May 2019 but I the ex-wife and co-borrower had not lived in it since probably September 2013 due to a divorce now live in California missed the 5 yr primary residence question due to this...

also we purchased the home in March 2009 for 105,000 and he wanted to sell the house to a friend of his & buy a new house asap for him & his new wife so he insisted that if I wasn't a horrible greedy person we must sell it for 80,000 although I did get him to raise the sales price to the $105,000 that we originally purchased it for even though it was worth closer to 130-140k.

                                   (he had been living in the home with as his girlfriend (now 2nd wife) since months after our divorce in 2013 in fact I had decided to visit family out of state for a few weeks before our divorce was finalized thinking it would take some months to process.he wouldn't even allow me to come pack my belongings myself after I visited family out of state for a few weeks before our divorce was finalized 

I am on SSDI and disability retirement and got 40% of the proceeds so about 42k on the tax document & 9k of it is profit after the mortgage was paid off  I realized that although I was a co-borrower on the mortgage and he could not originally assume the loan on his own the 1st 2-4 years after our divorce that the mortgage interest statement also only has his ssn on it and his new address and I was not issued a separate one with my 40% portion & his 60% portion on his 

it irritates me because he agreed to sell the house within 1-2 yrs of our divorce originally & then kept coming up with excuses for not doing so and I am afraid of owing taxes that I now may not be able to afford due to the situation he kind of helped push me into since he knew I was in no situation to be able to sue him to sell it until he was good and ready to on his own terms.

unsure of what amounts I use on my taxes that are due today...