Home sale tax impact

[annco9]

I am 81 years old and working toward selling my property after living in the house for 20 years and purchasing an apartment in a senior living facility. The appraised value of my property is about $1.3M and the apartment will cost less than $700K. What are the tax impacts both federal and in Colorado? Also, who should I talk to about the details of this sale: lawyer, financial advisor, etc.? Thank you.

[Opus 17]

There's no connection between the sale and the purchase.  Any rules relating the two were eliminated in 1997.

You pay capital gains tax on the gain from the sale.  If this was your main home and you lived there as your main residence for at least 2 of the past 5 years (731 days, does not have to be consecutive), you can exclude the first $250,000 of capital gains from taxation, whatever is over the limit is taxed per usual.  If you are married filing jointly, or you are a widow and you sell in less than 2 years from the date of your spouse's death, you can exclude the first $500,000.

Whatever you do with the money is irrelevant to how the sale is taxed.  

Your capital gain is the difference between your cost basis and the selling price.  Your cost basis is what you paid, plus the cost of any permanent improvements (remodeling, new roof, etc.) minus an adjustment for depreciation if the home was ever used for business.  You can also include in your cost basis, certain closing costs from the purchase, and you can reduce your selling price by certain costs of selling.

For all these rules, see publication 523.

https://www.irs.gov/forms-pubs/about-publication-523

[annco9]

If I understand the answer, reinvesting in another residence has no impact on calculating the capital gains. Is that correct?

[CindyKR]

Correct. Selling your home that you have lived in at least 2 years in the past 5 years has nothing to do with the purchase of another home/residential condo for tax purposes.

What you are worried about is either very old information about buying and selling a home. Or, it is confusion about a legal option to exchange properties. But that does not apply in your circumstance.

[CindyKR]

As for taxes, you will very much want to look up all your records and count all the capital costs to add to your original base value to reduce the amount of capital gains you will owe. If you are married or your spouse died within 2 years of the sale, you will get a $500,000 allowance before having to pay capital gains on anything above that. If you are single, you will have only $250,000 off the sale before having to pay capital gains. So every bit you can add to the basis is very important in your case.

Please read the publication 523 in the link in another comment provided about selling your home.

[Opus 17]

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@annco9 wrote:

If I understand the answer, reinvesting in another residence has no impact on calculating the capital gains. Is that correct?

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Correct. 

Up until 1997, it was possible to postpone paying capital gains tax if you bought a more expensive home.  That provision was removed from the tax law in 1997, and it would not have applied to buying a less expensive home in any case.    (And in fact, if you bought your present home before 1997 and postponed the gain from the home before that, you have some adjustments to make on the capital gains calculation, see publication 523).  

There are also some tax rules about "exchanging" properties, but that only applies to businesses, rentals and other income-producing property.