Q:

Subject: Capital Gains question

Good morning,

First, thanks for making a site where people can ask questions. Secondly, here is my question:

My wife and I moved from NY to Florida and purchased a home. We had no idea that within a few weeks, the woods was about to be plowed away and some 80 foot lights installed for a high school football field. Needlessless to say we want to move and we have only had the house for one month.

If we sell it now, do we have to have to pay capital gains?

Thank you for any help.

A:

If this truly was a surprise, and you are ready and able to make the case to IRS if they were to ask, that you wouldn't have purchased that particular home if you had known about the developments next door, you shouldn't have any problem qualifying for the pro-rated tax free exclusion of all or part of your profit.

However, the questions that pops into my mind is how much profit are you really expecting after owning the home for such a short time, especially after factoring in selling costs? Unless you bought the property at a bargain basement price, odds are high that you will be lucky to come out with a break even, and are more likely to end up with a non-deductible personal loss.

You need to consult with your personal professional tax advisor, who can crunch the numbers to see if there will be a profit to worry about; and if so, how long you will need to hold onto the home to cover the full amount of profit under the pro-rated exclusion calculation.

Good luck. I hope this helps.

Kerry Kerstetter

Follow-up:

Hi Kerry,

Thank you for the response. To be quite frank, I am not expecting a profit at all. In fact, i am expecting to take a loss. I just wan't clear who it worked, but apparently I get taxed only on profit over what I paid, if in fact that happens?

Thank you,

My Reply:

That's correct. I had a hunch you were worrying about a non-existent problem; qualifying for the tax free exclusion when there isn't any profit.

As your personal tax advisor will remind you, the double standard of the tax code will hit you here. While any profit on the sale of a personal residence is potentially taxable, any loss is not deductible.

Good luck. Hopefully, you won't have too large of a loss.

Kerry Kerstetter

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 11/01/2006 10:35:00 AM Send this post: