Christian Real Estate Blog

Capital gains tax law for real estate

Inman Real Estate News - Inside capital gains tax law for real estate: "DEAR BOB: I am confused about your recent answer to a home seller who wants to add her mother to the title. You said the mother would be eligible for an Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 after only 24 months of ownership and occupancy. How can she qualify with less than 60 months of ownership? ? Donald M.

DEAR DONALD: Internal Revenue Code 121 is very generous to principal residence sellers. After as little as 24 months of both ownership and occupancy, a home seller can qualify for up to $250,000 tax-free capital gains. That is the situation for the letter writer who plans to add her mother, who will live in the house for 24 months, to the home's title. Both daughter and mother then qualify for $250,000 individual exemptions.

However, a husband and wife can qualify for up to $500,000 tax-free principal residence sale profits if they file a joint tax return in the year of home sale. Only one spouse's name need be on the title, but both spouses must meet the occupancy test of 24 months within the 60 months before the sale.

IRC 121 does not require 60 months of home ownership if the seller meets the 24-month principal residence occupancy test. But there is one exception.

If the property was acquired as a rental residence in an Internal Revenue Code 1031 tax-deferred exchange, then it must be owned at least 60 months to qualify. However, owner-occupancy is only required for 24 of those months. For full details, please consult your tax adviser."

posted by Justin Smith @ 12/26/2005 05:12:00 PM