exclusion negates tax bill
My husband and I have owned our home in Maryland
for about 18 months. We are planning to sell next month and move
to North Carolina. We are both transferring with our current employers.
We requested these transfers rather than being asked to transfer.
We have about $100,000 in equity in our home. Will we have to pay
capital gains taxes? -- Jennifer
Generally a married couple filing a joint return can exclude $500,000
in gain from the sale of their principal home if they lived in and
owned it for two of the last five years. An unmarried individual
with the same time frame can exclude $250,000 in gain.
If the home is sold prior to meeting the use and ownership
time requirements, a partial exclusion may be available if the move
is a result of:
1. A change in place of employment
2. Health reasons or
3. Unforeseen circumstances.
Whether you or your employer initiate the employment
transfer is not relevant. You can still qualify for the reduced
exclusion even though it was your decision to make the move.
The reduced exclusion is fairly generous and will
be more than enough to avoid paying taxes on the $100,000 in appreciation
on your home. The reduced exclusion is calculated by taking the
period of actual use and dividing it by the required 24 months and
multiplying the resulting percentage by either the $500,000 in the
case of a married couple or $250,000 for a single person.
In your case, your 18 months of use is 75 percent
of the required time so you'll qualify for a maximum exclusion of
$375,000 (75 percent multiplied by $500,000). This is more than
you need to avoid paying tax.