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Old 12-19-2014, 04:19 PM
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Capital Gains Real Estate Proceeds

I am looking for some help regarding the real estate proceeds from the sale of two homes.

My wife and I purchased a house in 2010, lived in for two years and then converted it into a rental property in 2012. We rented it out for another two years and sold it in September 2014. We did not pay capital gains taxes on this house since we lived in it for 2 of the previous 5 years. The gain was approximately 110k.

When we converted the first home into a rental in 2012, we also purchased a different house. We have now lived in this home for 2 years and need to sale it for a bigger house due to an unexpected pregnancy. The house is currently in escrow and is set to close in a couple weeks. I just learned that the IRS rule states that the exclusion can only be used once every two years. We are set to have a gain of approximately 215k from this home, but directly roll all the proceeds into the house we are buying.

My question is do we have to pay capital gains taxes on one of the homes?
If we do, can we choose which one to pay on since we have not filed taxes yet for 2014?
Can the unplanned pregnancy be seen as an unforeseen circumstance that would exclude us from paying?
Would we be excluded from paying taxes due to the fact that all of the net gain from this house is being used as a down payment for the next house?

I know it's a little complicated, just looking for some expert advice.


Josh D.

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