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barbary
Level 1

Selling my house

I have owned my house since 1989. My husband (who is deceased) and I bought it for $135,000. My realtor says I could sell it for somewhere upwards of $400,000. My fiance and his wife (also deceased) bought their house in 1973 for someting like $40,000, and our realtor thinks he could sell if for over $600,000.

 

We probably want to move to a different house. Should we sell one house before we get married, and then one after? If so, in what order? If we don't move to a different house, which one should we sell?

1 Best answer

Accepted Solutions
slaudenslag
Employee Tax Expert

Selling my house

Since these properties are primary residences, you will be able to exclude some or ALL of the associated capital gains associated with the sale of the properties.   To qualify, you must have owned your home and used it as your main residence for at least two years in the five-year period before you sell it. You also must not have excluded another home from capital gains in the two-year period before the home sale. If you meet those rules, you can exclude up to $250,000 in gains from a home sale if you’re single and up to $500,000 if you’re married filing jointly.

 

The capital gain on a property is the sale price less selling expenses less the basis of the home (basis = purchase price plus capital improvements made over the years of ownership)

 

For the property purchased in 1989 this would equate to $400,000 - $32,000 (estimated selling expenses) - $135,000 = $233,000 capital gain.  This entire capital gain would be excludable from your income so I would sell this property first before your marriage.

 

The property purchased in 1973 is more complicated.  Quick math and assuming $0 capital improvements over the years, the capital gains would be:  $600,000 - $48,000 (estimated selling expense) - $40,000 = $512,000 capital gain.  For this property, it would be best to wait until you are married and you would need to wait two years after the sale of the 1989 property to take advantage of the $500,000 capital gain exclusion for a married couple.

 

I hope I have explained this clearly!  Good luck with your home sales!

 

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3 Replies
martinmarks
Level 10

Selling my house

You'll get more answers than this one but....and my opinion only.....sell your house and move into his. You can only shield $250k each with your home sale exclusions. Then you can sell his house.....which you can make half yours.....after 2 years and exclude $500k if you're married filing jointly.

slaudenslag
Employee Tax Expert

Selling my house

Since these properties are primary residences, you will be able to exclude some or ALL of the associated capital gains associated with the sale of the properties.   To qualify, you must have owned your home and used it as your main residence for at least two years in the five-year period before you sell it. You also must not have excluded another home from capital gains in the two-year period before the home sale. If you meet those rules, you can exclude up to $250,000 in gains from a home sale if you’re single and up to $500,000 if you’re married filing jointly.

 

The capital gain on a property is the sale price less selling expenses less the basis of the home (basis = purchase price plus capital improvements made over the years of ownership)

 

For the property purchased in 1989 this would equate to $400,000 - $32,000 (estimated selling expenses) - $135,000 = $233,000 capital gain.  This entire capital gain would be excludable from your income so I would sell this property first before your marriage.

 

The property purchased in 1973 is more complicated.  Quick math and assuming $0 capital improvements over the years, the capital gains would be:  $600,000 - $48,000 (estimated selling expense) - $40,000 = $512,000 capital gain.  For this property, it would be best to wait until you are married and you would need to wait two years after the sale of the 1989 property to take advantage of the $500,000 capital gain exclusion for a married couple.

 

I hope I have explained this clearly!  Good luck with your home sales!

 

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NateTheGrEAt
Employee Tax Expert

Selling my house

Let me add one other twist to slaudenslag's excellent answer. Keep in mind that because you owned these properties with a co-owner who is now deceased, your basis may be higher than your original purchase price. That's because when you inherit property, you receive a step-up in basis to the value at the date of death. In other words, your capital gains exposure could be lower than it appears.

 

I will give an example to help illustrate this. 

 

You and your late husband bought your house in 1989 for $135,000. Since you owned it jointly, think of this as you owning half of the house with a basis of $67,500 in your half, and him owning half of the house with a basis of $67,500 in his half. Now let's say that when he passed away, your house was worth $300,000 (I don't know when he passed, or anything about real estate prices in your area, so this is just for illustration). At that time, the value of his half of the house would have been $150,000 - half of $300,000. So, you inherited his half, and your basis in that half is $150,000. While you might think your total basis in the house is $135,000...it's not. In this example it would now be $217,500 ($67,500 basis in your half plus $150,000 stepped-up basis in his half) meaning you could apply the $250,000 exclusion up to a $467,500 sales price...in actuality higher because you may have made improvements to the house over the years and you will surely have some costs related to the sale.

 

Also, I don't know what state you live in, but there are special considerations in certain community property states (such as California). For example, in California, the entire property is stepped up upon the death of one co-owner. So in the example I just provided, your basis would be $300,000, not $217,500. 

 

The same principle applies to your fiancee's house. Depending on when his late spouse passed away, his basis may be much greater than he thinks. 

 

I hope this information is helpful in your planning process.

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