Howdy meryl2005-ga,
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for informed professional medical, psychiatric, psychological, tax, legal,
investment, accounting, or other professional advice."
On examination of your question, I have no doubt you meant to type "April
2006" for the date of the sale of the second house.
The Internal Revenue Service (IRS) "Publication 523 - Selling Your Home"
has the answers to your questions.
http://www.irs.gov/publications/p523/ar02.html
"...
More Than One Home Sold During 2-Year Period
You cannot exclude gain on the sale of your home if, during the 2-year period
ending on the date of the sale, you sold another home at a gain and excluded
all or part of that gain. If you cannot exclude the gain, you must include it
in your income.
..."
The above is pretty straight forward in that, without an exception, you can
exclude up to $250,000 (or up to $500,000 if married filing jointly) on the
sale of one or the other house, but not both. You can choose which one to
exclude, but on the one you do not exclude, you will have to pay gains.
You might have noticed the "without an exception" above. If we read on in
Publication 523, we find the following tidbit.
"Exception. You still can claim an exclusion, but the maximum amount of
gain you can exclude will be reduced, if the reason you sold the home was:
- A change in place of employment,
- Health, or
- Unforeseen circumstances (as defined earlier).
For details about this exception, see Reduced Maximum Exclusion, earlier."
You will want to read the publication in detail for the definition of the
applicable "unforeseen circumstances" that might qualify you for exception,
but it includes things such as divorce and other natural disasters.
There is a catch on the exception, that you might have caught, in that the
maximum gain you can exclude under the exception will be reduced. There is
a worksheet included in the referenced publication, but it is calculated as
a percentage of the time between the sale of the two homes times the total
exclusion allowed. In other words, if there is 8 months between the sale of
the first home and the second home, and you qualified for the exception, you
could exempt .333 of the $250,000, or $83,250 of the gains of the sale of the
second home.
There are other little things to watch out for, as your one home is used as a
rental property. If you took depreciation deductions then you have to reduce
your exemption by the amount of the depreciation deductions and then have to
pay gains on that amount.
You can also change your mind within a certain amount of time after making
decisions on what to exclude, etc. From the same publication.
"You can choose not to take the exclusion by including the gain from the sale
in your gross income on your tax return for the year of the sale. This choice
can be made (or revoked) at any time before the expiration of a 3-year period
beginning on the due date of your return (not including extensions) for the
year of the sale."
If you need any clarification, please feel free to ask.
Search strategy:
Went to the IRS web site and searched on: exclusion | primary | residence
Looking Forward, denco-ga - Google Answers Researcher |
