does anyone know anything about the capital gains tax in Va.? Can you sell a house if you have lived in it less than 2 years and avoid paying the tax?
The capital gains exemption rule you are alluding to is in the federal income tax codes. The IRS has certain exceptions to the two year rule under which you might qualify for a partial exemption on your federal income tax return.
Most states follow the federal income tax guidelines on the capital gains exemption, but not all of them. Best to check your state tax regulations to see how you might be affected. The instructions for preparing your state tax return should be available online and might give you the answer you are looking for.
Good time to ask this question I just got done writting this for my course that I am teaching!
What are some of the tax advantages of owning a home?
Tax breaks enter the home ownership picture from all angles: buying, owning and selling. Remember that tax laws are constantly changing and complex, and you should consult with your professional tax advisor before filing any claims on your tax returns.
Here are the basics:
Closing Costs You Can Deduct
When you close on your home buying transaction, you may have paid up-front interest, which is deductible. Up-front interest is sometimes called “points,” “loan origination fees,” “maximum loan charges,” “loan discount” or “discount points.”
To be deductible, these up-front charges must have been paid at closing and the lender must have considered them to be prepaid interest. If the lender charged a fee as payment for the use of the money, as opposed to payment for services performed, it’s deductible.
And, thanks to a 1994 tax rule change, you can deduct up-front interest even if the seller (or builder in the case of a new home) paid it for you.
Be sure, however, that you do not include fees for appraisal, notary services and loan preparation in your deductions. These fees are not considered prepaid interest; they are payment for services performed.
Depending on your transaction and loan, qualifying charges are either deducted proportionally over the life of the loan or entirely in the year you purchased the home.
Monthly Costs You Can Deduct
You can also deduct amounts you paid, beginning on the date the transaction closed, for allowable home mortgage interest and property taxes.
If you paid $600 or more in mortgage interest during a year, your lender should send you Form 1098, which shows the total interest and any deductible points you paid during the year. If you do not receive this form, call your lender.
These deductions can be substantial, so review them carefully. You could save hundreds of dollars each month. For example, homeowners who have a mortgage for $100,000 may pay roughly $6,000 in mortgage interest and $1,200 in property taxes (depending on where the home is located) each year. Assuming that these fees qualify as deductible expenses, homeowners in the 28 percent tax bracket could save $2,016 each year, or $168 a month, in Federal income taxes.
When You Sell Your Home
A recent change to the new tax bill allows you to exclude capital gain of $500,000 for married taxpayers and $250,000 for single taxpayers. To exclude the gain, you must use the home as your principal residence for 2 of the last 5 years. Moreover, you can use the exclusion once every 2 years for the rest of your life. Further, age is not an issue. You can be age 20, 40, or 60 when you claim your exclusion. The new law eliminates the old $125,000 exclusion for a taxpayer age 55 and over and replaces it with the new, any age, bigger bucks exclusion. The new rules apply to homes sold after August 5, 1997. They replace the rollover and one-time exclusion rules.
Should unforeseen circumstances such as health, job change, etc., cause you to move before you occupy the home for 2 years, you may exclude the fractional part of the 24 months you occupy the home as your principal residence. Thus, if you lived in the home for 12 months before employment forced you to move, you could use 50 percent of the exclusion.
For More Information
To find out more about these deductions or other tax breaks for homeowners, contact a tax professional, call the IRS at 800/829-1040 or review the following
IRS publications: Home Mortgage Interest Deduction (Pub. 936), Tax Information for First-Time Homeowners (Pub. 530), Moving Expenses (Pub. 521) and Selling Your Home (Pub. 523). You can find most of these publications in your local library. On the Internet, you can find more information on the IRS web site:
(http://www.irs.ustreas.gov).
Reconsultants,
Couple of question?
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If you do pay interest on your capital gains after selling, I assume that this is done on your end of year tax return? Correct? Or is there some other form you have to use at closing?
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Now if you want to take the tax interest that you don’t pay out in taxes and apply it to another home, how is that done? and when is that done? and by whom?
These might seem like very simple questions that most people should know, but I don’t. Thanks for your response.
Joe
1. If you do pay interest on your capital gains after selling, I assume that this is done on your end of year tax return? Correct? Or is there some other form you have to use at closing?Most of us don't pay interest on our capital gains. You need to describe a specific situation.
Maybe, you really meant to ask about the capital gains taxes paid on our profits. If so, then the answer is YES, the tax is paid when your file your annual tax return. Some states also require a certain percentage to be withheld at settlement. This withholding is applied to your state tax liability and is reported as a withholding on your state tax return.
2. Now if you want to take the tax interest that you don't pay out in taxes and apply it to another home, how is that done? and when is that done? and by whom?Again, I don't know the term "tax interest". We only pay interest on our taxes due when the taxes are paid late.
The tax codes do allow you to take your profit from the sale of an investment property and apply it (tax free) to the purchase of a replacement investment property. Section 1031 of the tax code governs this process, which suggests why this process is often called a 1031 exchange.
If you sell your primary residence in a taxable sale, you pay the taxes due on your profits regardless of what you do with the money.