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efil4stnias

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I am selling my abode. My new abode is ready and will be moving in before i sell the old.

Was hoping to time it out so i could roll the equity from sale to new one, but not gonna happen.

So once i sell my old, how long do i have to roll the equity into the new home to avoid it being deemed "income"?

I have heard 45 days, 90 and the mtg lady said 365 ( which i find hard to believe ). Furhter, since im doing a VA loan, i have to keep for min 6 mo ( wont let me refi nor will they allow me to send in a lump sum and re-amortize my current loan )

and i also dont want this $$$$ hanging out because after a month or so, my wife will annex it and ill have interior decorators running roughshod thru the home.
 

superchuck500

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If it is your principal residence, the cap gains exclusion doesn't have a time frame on it. It's yours. Congrats.

Those rules apply to investment property.
 
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efil4stnias

efil4stnias

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If it is your principal residence, the cap gains exclusion doesn't have a time frame on it. It's yours. Congrats.

Those rules apply to investment property.

so im understanding it to be cap gains tax free....but then wouldnt it be deemed "ordinary income" over a certain period of time?
 

superchuck500

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so im understanding it to be cap gains tax free....but then wouldnt it be deemed "ordinary income" over a certain period of time?
No, it's not income. It is a gain realized from the sale of an asset ("capital gain"). And if it is a qualifying principal residence, the first $250K for single/separate or $500K for joint of gain/profit is excluded from tax.

Eligibility Test
The Eligibility Test determines whether you are eligible for the maximum exclusion of gain ($250,000 or $500,000 if married filing jointly).

Eligibility Step 1—Automatic Disqualification
Determine whether any of the automatic disqualifications apply.


Your home sale isn’t eligible for the exclusion if ANY of the following are true.
  • You acquired the property through a like-kind exchange (1031 exchange), during the past 5 years. See Pub. 544, Sales and Other Dispositions of Assets.
  • You are subject to expatriate tax. For more information about expatriate tax, see chapter 4 of Pub. 519, U.S. Tax Guide for Aliens.

If any of these conditions are true, the exclusion doesn’t apply. Skip to Figuring Gain or Loss , later.

Eligibility Step 2—Ownership
Determine whether you meet the ownership requirement.

If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

Eligibility Step 3—Residence
Determine whether you meet the residence requirement.

If you owned the home and used it as your residence for at least 24 months of the previous 5 years, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period, and it doesn't have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period. Unlike the ownership requirement, each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion.
If you were ever away from home,
you need to determine whether that time counts towards your residence requirement. A vacation or other short absence counts as time you lived at home (even if you rented out your home while you were gone).
If you become physically or mentally unable to care for yourself,
you only need to show that your home was your residence for 12 months out of the 5 years leading up to the date of sale. In addition, any time you spent living in a care facility (such as a nursing home) counts toward your residence requirement, so long as the facility has a license from a state or other political entity to care for people with your condition.

Eligibility Step 4—Look-Back
Determine whether you meet the look-back requirement.


If you didn't sell another home during the 2-year period before the date of sale (or, if you did sell another home during this period, but didn't take an exclusion of the gain earned from it), you meet the look-back requirement. You may take the exclusion only once during a 2-year period.

Eligibility Step 5—Exceptions to the Eligibility Test
There are some exceptions to the Eligibility Test. If any of the following situations apply to you, read on to see if they may affect your qualification. If none of these situations apply, skip to Step 6.
https://www.irs.gov/publications/p523#en_US_2018_publink10008937
 

buzd

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so im understanding it to be cap gains tax free....but then wouldnt it be deemed "ordinary income" over a certain period of time?
No, because it is still capital gains. It's just tax-exempt.
 
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efil4stnias

efil4stnias

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No, because it is still capital gains. It's just tax-exempt.
ok got it- cant deem it "income" because its from sale of asset ( primary home ) which falls under capital gains bracket and cant be "moved" to fit "income".
 

superchuck500

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ok got it- cant deem it "income" because its from sale of asset ( primary home ) which falls under capital gains bracket and cant be "moved" to fit "income".
Correct. Ordinary income and capital gains are fundamentally different under the tax code. A capital gain doesn't "become" income. (Some capital gains are taxed in the same way as income, e.g. short-term capital gains, but they're still not income).
 

livefromDC

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Would it be different if he wasn't purchasing a new primary residence this year too? Perhaps that's what the mortgage lady was thinking. It's not taxable as long as you purchase a new home to be your primary residence within the same calendar year (365 days).
 

Saint_Ward

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I'm not a CPA, but my google is strong.

https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp

It is true in most cases. When you sell your home, the capital gains on the sale are exempt from capital gains tax. Based on the Taxpayer Relief Act of 1997, if you are single, you will pay no capital gains tax on the first $250,000 you make when you sell your home. Married couples enjoy a $500,000 exemption. There are, however, some restrictions on this exemption.

...

In order for the sale to be exempt, the home must be considered a primary residency based on Internal Revenue Service (IRS) rules. These rules state that you must have occupied the residence for at least two of the last five years.

...

This act has been beneficial for homeowners because it has significantly changed the implications of home sales. Before the act, sellers had to roll the full value of a home sale into another home within two years in order to avoid paying capital gains tax. This, however, is no longer the case, and the proceeds of the sale can be used in any way the seller sees fit.
Back in the day, you had 2 years to roll it into a new home. Now it doesn't matter, so long as it is under the exempt amount.
 

dtc

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Would it be different if he wasn't purchasing a new primary residence this year too? Perhaps that's what the mortgage lady was thinking. It's not taxable as long as you purchase a new home to be your primary residence within the same calendar year (365 days).
I don't think it would matter.
 

superchuck500

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I don't think it would matter.
There’s nothing about when you have to use the gain for a new residence - at least not for tax purposes. Maybe there’s some FHA rule or something.
 

GeauxWhoDats

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Do not forget to change your Homestead Exemption to the new residence ASAP if you want to claim the new property for 2019. You do not have to wait until the old property sells.

St. Tammany and I went at it for 2018.
 

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