Tax Guru – Ker$tetter Letter

Q:

Hello,

        I was looking up information on taxes of real estate and came across your website.
I have yet to find an answer to my question and I was hoping that you may be able to assist me.

I recently bought my place of residence and for $290K
I have decided to sell it for $325K and purchase another place for $100K

I have owned my current place for 6 months and it is my primary residence and I am selling it to buy another primary residence.

Am I subject to pay any tax since I am moving from a primary residence to a primary residence and my gain us under $250K? (I am single so I am only allowed the $250K and not the $500K).

If I am subject to the tax since I have not lived their for at least two years can I prorate the time I have been there (the 6 months, meaning 25%)

therefore allowing me $62.5K of tax relief (which would still allow me to not pay the taxes)?
Or am I subject to all the taxes?

Any information you can provide would be greatly appreciated.

Regards,

A:

You neglected to include a very crucial bit of information; why you are moving.

If it is due to a health, employment or other major unexpected development, you may be able to qualify for the pro-rated exclusion.

You can see more details at www.taxguru.org/re/primary.htm

Follow-up Q:

Hello Kerry,

        I am moving for personal reasons, nothing to do with the information listed below.  I feel that this new property is a better investment for the future.

Given this information does that allow for any tax relief?

Regards,

A:

Then you will have a short term capital gain that will be subject to ordinary income tax rates.

What you need to do is work with a tax pro to make sure you are reporting the proper amount as profit, which will entail a good accounting for your total cost basis of the home.  Make sure to include the cost of all improvements you have done to it, as well as any other items, such as furniture and appliances, that you will be leaving behind.  You also want to keep good tabs on the selling costs, including any that you spend on your own, such as trying to sell it yourself.

Good luck.

Kerry Kerstetter

Reply:

Hello,

        Thank you for your assistance, though not the answer I was hoping for I appreciate all your help.

Regards,