title>Tax Guru-Ker$tetter Letter Wizard Animation

                 

Tax Guru-Ker$tetter Letter
Monday, July 04, 2005
 
Too Much Profit On Home Sale

Q:

Subject: Primary residence

Tax guru:

What if you have more than $500,000 gain on your primary residence?

Is it fully taxable?

Can you do a 1031?

Do you have to reinvest at a higher level for your primary residence?

If you can help...

Thanks

 

A:

If you are married and have a gain of more than $500,000 on your home sale, the excess is taxable as long term capital gain.  There is no reinvestment opportunity for residences; so whether or not you buy a new home is completely irrelevant.

1031 exchanges are not allowed for personal use property.

However, a common strategy in situations such as yours is to convert the home into a rental and later dispose of it via a 1031 exchange.  This makes the disposal ineligible for the Section 121 tax free exclusion.  You would also be required to reinvest the proceeds into other business, rental or investment real estate; and not directly into a new personal residence.

There are obviously a lot of pros and cons to the various strategies available to you.  You definitely need to consult with a tax pro who understands these kinds of real estate transactions.

Good luck.

Kerry Kerstetter

 

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- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 7/04/2005 04:29:00 PM Send this post:

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