Recommend Our Site to Your Friends!

Print This Page

Subject:  question about capital gains tax

From:  Andrea
Date:  Sat, 20 Sep 2003

I have a question regarding the sale of a home I own. My husband and I have owned a house in Vallejo for 12 years. We lived in the house up until five years ago. It has been a rental since then. We are also living in a rental. In other words, we do not own any other property. We would like to sell the Vallejo home and buy a home to live in. Will we be taxed? If so, is there a way to avoid the taxation? We should be able to sell the house for about $200,000. However, we still owe about $90,000 on the loan. Any advice you can give would be greatly apprevciated.

Thank you,
Andrea

Answer

Date:  Fri, 03 Oct 2003

The rental home that you own no longer qualifies as a residence, and so doesn't qualify for the exclusion of gain from the sale of a principal residence. Selling the home would be taxable. In fact, 3% of California tax would be withheld from the sale proceeds.

You could make a tax-deferred exchange to another rental house, and eventually convert the rental house to your residence. Two years might be a reasonable waiting period before the conversion.

If you decide to exchange the property, I highly recommend that you work with a good tax advisor and find a qualified intermediary to handle the exchange, or it could still be taxable.

Good luck!
Mike Gray

We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.