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Old 04-15-2014, 12:21 AM
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Can I exclude capital gain from profit due to relocation?

In 2013 my wife and I relocated from CA to MA due to job change. We sold two properties as part of the relocation process last year in CA, one was our primary residence , another was a condo that we had rented out. The condo was our primary residence for about 10 years until we purchased a single house 2.5 years ago. In other words, we had lived in both (primary) properties for more than 2 years within the past 5 years period respectively. Due to relocation, we sold the single family home to the relocation company, and we sold the condo ourselves. Both of these two properties sold were with some capital gain on each property (but much lower than the $250K exclusion limit on each property).

We understand that we can claim the exclusion only once every two years, however there are exceptions to this capital gains tax rule if due to relocation for job change. We know that we can at least exclude profit from one property (the one we sold ourselves), do we have to file capital gains tax on the one sold to relocation company as well?

Thank you very much.



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Old 04-15-2014, 07:06 AM
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Originally Posted by jonathan View Post

We understand that we can claim the exclusion only once every two years, however there are exceptions to this capital gains tax rule if due to relocation for job change. We know that we can at least exclude profit from one property (the one we sold ourselves), do we have to file capital gains tax on the one sold to relocation company as well?

Thank you very much.
Correct; The federal tax law imposes a capital gains tax whenever you sell an asset, such as your second home, and earn a profit. Since the IRS only allows you to exclude the capital gain on the sale of your main home, avoiding or reducing your tax liability on the second home depends on the capital losses you have available, your tax basis in the home and the holding period.as you sold your main home and made a profit, you may be able to exclude that profit from your taxable income; you can exclude up to $500K in profit from the sale of a main home as long as you have owned the home and lived in the home for a minimum of two years. Those two years do not need to be consecutive. In the 5 years prior to the sale of the house, you need to have lived in the house for at least 24 months in that 5-year period. In other words, the home must have been your principal residence. You can use this 2-out-of-5 year rule to exclude your profits each time you sell or exchange your main home. Generally, you can claim the exclusion only once every two years. Some exceptions do apply.If you lived in your home less than 24 months, you may be able to exclude a portion of the gain. Exceptions are allowed if you sold your house because the location of your job changed, because of health concerns, or for some other unforeseen circumstance.please read below.
Note;An exception for a job-related move allows a seller a reduced gain exclusion when they do not meet the two-year use and ownership test.The sale of your main home, the condo, is because of a change in your place of employment if your primary reason for the sale is a change in the location of employment. For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer at a different location. It also includes the start or continuation of self-employment.Job-related exclusion rules for home sale: • The change occurred during the period you owned and used the property as your main home. • And the new place of employment is at least 50 miles farther from the home you sold than the former place of employment was. Assuming you meet the distance test, you can claim a reduced gain exclusion on the sale of the condo. The reduced gain exclusion is based on the months you lived in the condo, divided by 24 months, multiplied by the maximum exclusion you could otherwise claim.For example, if you're single, the maximum exclusion you could claim is $250K. If you owned and used the condofor six months, your reduced exclusion is 25 percent of $250K or $62,500. If your gain on the sale of the condo home is less than $62,500, you won't owe any income tax on the sale of the property. The type of loan on the condo does not affect the reduced exclusion.



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