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The short answer is that there will be tax implications from the sale that
The commenters are no doubt thinking about the "rollover replacement rule"
that was replaced by the Taxpayer Relief Act of 1997. Under the old rules,
capital gain taxes could have been deferred in your case, but that is no
Instead, your simplified example will be the case, that is, you will have
capital gains tax to pay on the approximate $200,000 end profit of the sale.
There is a article by Ilyce R. Glink on her "ThinkGlink" website which
addresses a situation similar to yours.
Summary: A reader is moving from California to Idaho and would like to
limit their state tax liability on capital gains. Ilyce explains that
the "rollover replacement" rule was thrown out ..."
The above article points out that you will want to read Internal Revenue
Service (IRS) Publication 523, titled "Selling Your Home."
The above publication "includes worksheets you can use to figure your
gain (or loss) and your exclusion. Use Worksheet 1 to figure the adjusted
basis of the home you sold. Use Worksheet 2 to figure the gain (or loss),
the exclusion, and the taxable gain (if any) on the sale. In some
situations, you may also need to use Worksheet 3 to figure a reduced
Those worksheets will give you a better idea on what the actual gains will
be on your sale.
The ThinkGlink article also indicates that you will want to reference the
California Franchise Tax Board (CFTB) as well, as there might be California
state tax implications. The following is from the CFTB website.
"I sold my personal residence. How do I report the sale to California?"
"You must report the sale of your principal residence if you have a gain
and do not qualify to exclude all of it, or you choose not to take the
exclusion. When you complete your federal tax return, you must complete
federal Schedule D (Form 1040), Capital Gains and Losses. A copy of your
federal return, and all the supporting schedules must be attached to your
California return. Generally, your California gain is the same as federal,
so no adjustment is required on your California return. However, if your
California basis in the home differs from your federal basis, complete
California Schedule D, California Capital Gain or Loss Adjustment."
As well, if you used the house for business purposes, that is, took tax
deductions for a home office or similar, then it could get complicated
and have further tax implications.
The ThinkGlink article referenced above concludes with some good advice.
"Finally, be sure to talk with your attorney or tax advisor to make sure
other rules, regulations and laws don't apply in your situation ..."
If you need any clarification, please feel free to ask.
Google search on: capital gains tax house sale
Google search on: "rollover replacement"
Referenced the IRS website.
Referenced the CFTB website.
Looking Forward, denco-ga - Google Answers Researcher