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$250,000 Home Sale Tax Exemption Exceeded? |
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If your lucky enough to be sitting on a capital gain in your principal residence that exceeds the $250,000 tax-free exemption under Internal Revenue Code Section 121, then Section 1031 of the IRC may offer some help to ensure you pay no tax on the sale of your primary residence.
With a little planning and forethought you can use a 1031 exchange to defer taxes when you sell your home. Due in part to large increases in real estate market values, many home sellers are finding their home sale capital gains exceeds the Internal Revenue Code Section 121 tax exemption amounts. Although a partial exemption is available, the only method to make the entire capital gains expempt from tax payment at the time of sale is to make a Section 1031 exchange. Robert Bruss oulines a lot of the related issues in his article on what you need to know about the home sale exemption. The basic outline of steps is to: - move out of your home and rent it (at least 12 months)
- sell your former home (the one your renting)
- use the sale proceeds to aquire another investment property of equal or greater cost and equity
- designate the new replacement property within the 45 day deadline
- take title to the new property within the 180 day deadline.
Make sure to utilize a qualified intermediary and obtain professional tax advise before considering any transaction. |
