Capital Gains Exclusion for Profit on the Sale of a Personal Residence
I still find that the public will mix up the terms of the personal exclusion for capital gains and the 1031 income property roll over. Today I am speaking of the personal capital gains exclusion. (Always check with your CPA for confirmation before acting on this information.)
Most sellers realize now that when they sell their personal residence or a second home used for personal residence they can exclude paying capital gain taxes on a certain amount of profit. After deducting cost of sale items a single person can protect $250,000 and a married couple can protect $500,000 from capital gains tax.
Shortly after the real estate crash of 2007 this topic was important to fewer people but today it is more in the forefront.
What if you have not lived in your personal residence for two full years?
Congress did provide a few safe havens for this circumstance. The FIRST is EMPLOYMENT CHANGE. If you take a job over 50 miles away from your current residence you may use this exemption. The SECOND is HEALTH. If a doctor recommends that you move to a different property due to health or injury then you may use this exemption.
The THIRD safe haven is a class of SPECIAL UNFORESEEN CIRCUMSTANCES.
Unforeseen Circumstances: Congress passed the buck to the IRS to come up with definitions — safe harbors — under this amorphous category. The IRS rose to the challenge, by providing that the following events would be considered “safe harbors”, on the condition that these events involve the taxpayer, his/her spouse, co-owner or a member of the taxpayer’s household:
- being terminated from employment and thus eligible for unemployment compensation;
- a change in job status that results in the taxpayer being unable to pay the mortgage and reasonable basic living expenses for the taxpayer’s household;
- divorce or legal separation;
- multiple births resulting from the same pregnancy;
- Involuntary conversion of the property — such as a condemnation by a governmental authority, and
- destruction of the property because of a man-made disaster, an act or war or terrorism.
If you need to sell an income producing rental property you may use the 1031 exchange roll over to “defer taxes” to a later date. To do this you must us an exchange accommodator.
For help with selling a personal residence or an income property in South Orange County call,
Ron Buck bre 01364665 at Keller Williams Realty. 949-456-0505 or Contact Me.