capital gains tax

[Jtyo]

Hi,

Does anyone know if there is an exception on capital gains taxes if you’re selling your primary residence due to an employment transfer, but you purchased it less than two years ago? (Less than a month ago in this case :'( ).

Thanks!

[Dave T]

Yes, there is a reduced maximum exclusion available when a job relocation forces you to move out of your primary residence before you meet the two year ownership and occupancy requirements.

If you qualify, the maximum capital gains exclusion is prorated over the period of time you both owned and occupied the house as your principal residence.  In your case, if that is less than one month, then your ratio is the number of days of use and ownership divided by 730.  

Multiply your maximum capital gains exclusion by the proration ratio.  Let's say that your ratio is about 4% and that your maximum exclusion is $250K.  Your reduced maximum exclusion is about $10K.

If you have owned the property for less than one month, how much appreciation will you have?

[Jtyo]

Hi,

Thanks for your reply. That helps a lot. We actually have quite a bit of appreciation - we bought the house from my husband's parents and they sold it to us for well under market value. Well more than $10k. Not sure what we should do.

Thanks again.

[Jtyo]

Can I ask you another question? If my husband rents an apartment, visits on weekends and I still live in the home for another couple months, would it still be considered both of our primary residences?

[Dave T]

That information has a dramatic impact on your situation.

You may want to consult a licensed tax professional in your area.  Since you bought from your inlaws, related party rules tell us that your cost basis is the FMV of the property on the date of transfer.

The difference between your purchase price and the FMV was a gift of equity from your inlaws.

Your husband's short term absences are still counted as periods of occupancy in your primary residence.

Again, you may want to consult a tax professional for specific details.  The tax savings may be well worth it.

[Jtyo]

Thanks again. Hopefully I can get someone to help us out post April 15!

[kdhastedt]

Jyto,

You can get all the straight answers on-line from the IRS:

http://www.irs.gov/publications/p523/ar02.html#d0e1901

Hope this helps!

Keith