My wife and I will be selling our house in Illinois this month at a very minimal profit, and I guess it depends on the definition of profit because it is based on the fact that we put down a significant amount of money on the house. =======>>I assume that the home in Illinois is your primary residence; as you alternate between 2 properties, using each as a residence for successive periods of time, the property that you use a majority of the time during the year ordinarily will be considered your principal residence.Then, aslongas you have resided in your residence for at least 2 of the last 5 years may be eligible for the Principal Residence Exclusion ; Single taxpayers are entitled to a $250K exclusion and married taxpayers filing jointly are entitled to a $500K exclusion. An exclusion allows you to have a gain on the sale of your primary residence up to the maximum limit without having to pay capital gain taxes. If you can exclude all of the gain, you do not need to report the sale on your tax return, unless you received a Form 1099-S. Even better, there's no limit on the number of times you can use the home-sale exemption. In most cases, you can make tax-free profits of $250k, or $500k depending on your filing status, You also must live in that principal residence for2 of the 5 years before you sell it. This is known as the use, 2 yr, /ownership , 5 yr, test. It also means, practically speaking, each sale must be at least two years apart.every time you sell a home.Any gain over and above these exclusion limits is taxable.Your long term capital gain is: Calculating your capital gains starts with finding your adjusted cost basis. The adjusted cost basis has three components ; the original purchase price, any closing costs that you paid for the property but not the loan, and the cost of any improvements that you made to the property. You subtract your adjusted cost basis from your selling price. The selling price is what you received for the property after any closing costs or commissions.
We will also be selling a condo in Denver that we lived in from 2010-2013 and have been renting it since, and stand to make a significant profit on it. ==========> You can, however, turn a rental house into your primary residence, making the sale of it eligible for the exclusion as said above. This is accomplished when you meet the IRS use and ownership tests: You own and live in the home for two out of the five years before the sale as said above.But if you sell it as rental home, then you sell the rental property, your profits are subject to capital gains tax since you don't get the same exclusions that you do on your personal residence as said above. However, given that the IRS lets you use what you pay for closing costs and for property improvements to both reduce your selling price and increase your purchase cost, your profit might not be as large as you think. On the other hand, depreciation recapture might leave you with an additional unexpected tax bill.You MUST recapture the unrecaptured depreciation taken previously on the rental home as ordinary income taxed at 25% if your tax rate is 25% or higher or 15% /10% if your tax rate is 15% or 10%. So as said, to exclude up to another $500K on sale of the rental home , you need to convert it as primary residence and live there for 2 out of five years and sell it .however, you still must pay ordinary tax on the recaptured depreciation; Or to delay your capital gain tax, you may choose A 1031 Exchange as a tax-deferred exchange;you are taxed on any gain realized from the sale of the rental home. However, through a Section 1031 Exchange, the tax on the gain is deferred until some future date e.g., the future resale of the home you will purchase with the proceeds from the sale of a current property.
I admit I know nothing about taxes so my question is will we have to pay taxes on either of the sales? =========>>>>>>>as mentioned above.