sale gains and the military
I am in the U.S. Air Force and I lived in my
house for 18 months before I got orders. I have had renters in it
for the last three years and I am selling it now. Since I have owned
the house for less than five years, will I have to pay capital gains
taxes? If so, how much? -- David
When it comes to the military, Congress and the president have gone
out of their way to provide additional tax benefits. IRS discusses
these benefits in Publication
3. Unfortunately, they didn't specifically think about your
situation -- at least not yet. Barring some election-year, politically
motivated tax act, you're probably still able to exclude most of
the gain on the sale of your home under the general rules that would
apply to anyone motivated by a job move.
The basic rule is that you must have lived in your
home in two of the last five years to exclude gain. You don't need
to have owned the home for five years, as you suggest. If you lived
in the home for any period of time within five years of the sale
and you sold because of changed circumstances (such as a job-related
move), you can get a partial exclusion.
The partial exclusion is fairly generous. The partial
exclusion is a fraction, the numerator of which is the number of
months that you lived in the home in the last five years divided
by 24 months multiplied by the appropriate exclusion. The exclusion
is $250,000 for unmarried taxpayers and $500,000 for married couples.
In your case, the exclusion would be the 18 months divided by 24
(or 75 percent) of the appropriate exclusion. This means if you
are single, you could exclude up to $187,500 in gain, which is probably
more than enough to eliminate the gain you'll have on the sale.