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Q: Income Tax from Selling a Home ( Answered 4 out of 5 stars,   2 Comments )
Subject: Income Tax from Selling a Home
Category: Business and Money > Finance
Asked by: bluesteel101-ga
List Price: $25.00
Posted: 24 Mar 2005 03:51 PST
Expires: 23 Apr 2005 04:51 PDT
Question ID: 499620
My husband and I have found a home we want to purchase for $350,000. 
We currently live in a home we purchased for $200,000 and have lived
in from 1999 to 2005.  My husband works out of our current home, and
as such 2/3 of the home is our principle residence, and 1/3 is for his
What tax law or tax planning strategies could help us reduce or remove
any income tax implications from moving homes?

Clarification of Question by bluesteel101-ga on 24 Mar 2005 13:04 PST
To clint34 and wangarific;
Thanks! - The link really helped in explaining the subject.  Any other
links are always helpful.
And do you know the Tax Reg, Ruling or Statute from the IRS that
established these rules?
Thanks again!
Subject: Re: Income Tax from Selling a Home
Answered By: taxmama-ga on 24 Mar 2005 21:36 PST
Rated:4 out of 5 stars
Dear BlueSteel

Wangarific-ga is close, but not quite correct.
S/he's wrong about the depreciation; 
right about the personal residence exclusion.

Depreciation is an interesting phenomenon in tax law. 
It's one of those expenses the tax code calls "allowed or allowable".

I know, that means nothing to you. But to the IRS it means that if
you are using a property for business, you were 'allowed' the 
depreciation deduction. If you didn't take it, but used office in
home deductions without it - IRS treats the sale of the property as
if you HAD taken the depreciation. 

So, there are two things you will want to know. 

1) If you never used the depreciation, but should have, IRS
created a new procedure to let you take all the past due depreciation 
at one time - to catch up on the expenses. This comes from IRS
Revenue Procedure 2004-11. You can read Vern Hoven's explanation.

This revenue procedure is effective for a Form 3115 filed 
for taxable years ending on or after December 30, 2003.

Use Schedule E on page 8 of Form 3115 to request approval for
the catch-up depreciation. Get a tax professional to help you.

2) Once you've reported the right deductions for the depreciation, 
you can report the sale of your home. Report the sale on Schedule D
of your tax return. IRS pub 523 has this example showing how the
gain is reported on Schedule D. The rate is 25% on the depreciation.

See the detailed example #3

Enter the smaller of line 6 or line 10. Enter this amount on line 12 of the 
Unrecaptured Section 1250 Gain Worksheet in the instructions for Schedule D 
(Form 1040)

I hope this helps.

But, you really might want to get a tax professional 
to help you with this sale to make sure you end up
paying the least amount of taxes on it.

Best wishes,

Your TaxMama-ga
bluesteel101-ga rated this answer:4 out of 5 stars
Thanks for all the help!

Subject: Re: Income Tax from Selling a Home
From: clint34-ga on 24 Mar 2005 08:23 PST
You are expempt from paying taxes -filing jointly- up to 500K.  Sell
Take the gain, and move. No harm no foul. no taxes.
Subject: Re: Income Tax from Selling a Home
From: wangarific-ga on 24 Mar 2005 08:46 PST
There is a great article on Smartmoney that clearly explains your
particular situation, the sale of a home in which part of it was used
for business.

Basically the article says that if you didn't claim any depreciation
on the 1/3 that was used for business, you would treat the whole thing
as a residential property and be able to take advantage of the
$250/$500k tax exclusion for rolling in into the purchase of the new
$350k home. If you had claimed depreciation for 1/3 of the home, you
would have to pay tax on any gain attributed to that depreciation.

The $250/$500k tax exclusion rule means that if you lived in your home
two of the last five years (true), you are able to take $250-$500k of
appreciation (profit) and put it towards the new house without paying
any tax on the gain.

I hope that helps. The article is here but it's long:
<a href=""></a>

<a href="">Blueprint for
Financial Prosperity</a>

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