Did you own an existing home that you bought less than two years ago? And because of some unforeseen situations, you are force to sell it. Worse, now you are worried about the potential tax that you will be paying on the sale.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
In order to claim the $500,000 capital gain exemption on the sale of your home, you need to use and own it for two out of the last 5 years. Now, if you did not meet the 2-year rule when you sold your home, you can use the “reduced exemption” rules in order to avoid paying taxes.
A reduced exemption is available if the reason why you sold your home was due to:
1. Change of employment
4. Loss of job
6. Multiple births
The reduced exemption is calculated by dividing the total number of months you owned and used it over twenty four months. Here’s an example: Donald owned and used a property in Washington, DC for 12 months. Due to job relocation (he will go back to New York) he sold his property. Because the move was job-related, he qualifies for the reduced exemption.
12 months (Number of months owned/used) = 50%
$500K (capital gain exemption) x 50% = $250,000
Donald can exclude up to $250,000 of gain on the house he bought in Washington DC.
So make sure that you apply the “reduced exemption” rule in case you sell your home for less than two years.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.