Selling Two Homes

2009-01-14 by

Today TaxMama hears from Hilde in Illinois who tells us. “Almost two years ago we moved from our last house after living there 4 yrs. We finally found a buyer. Since the sale will be in 2009, could we also sell our current home in 2009 and avoid paying income tax on the $50,000.00 profit we may have from each one of the houses? We will be in our current home more than 2 yrs before we sell.”

Dear Hilde,

That’s a very good question. And it’s something that some of tax pros have discussed with IRS over the years.

First of all, be sure you don’t run out of time on the first house. To get the personal residence exclusion of $500,000 ($250,000 for single folks) you have to live in the house for 2 years out of the 5 years before the date of the sale.

Second, what did you do with the house since you moved out? If it was rented, you will have some other considerations to take into account – like paying taxes on the depreciation.
http://www.irs.gov/newsroom/article/0,,id=105042,00.html
http://www.irs.gov/publications/p523/ar02.html#d0e2017

Since you’re selling it in 2009, if it was rented, you will have new considerations that will reduce that $500,000 exclusion.
http://www.irs.gov/businesses/small/industries/article/0,,id=98921,00.html

Now, back to your main question – can you ALSO sell your current home in 2009 and get the benefit of the personal residence exclusion for both homes in the same year?

NO!

Sorry. We beat this issue up in discussions with IRS, over and over. You get to use only one exclusion in a given year.

So,...see which residence has the largest profit and use the exclusion for that residence. Or, if you can, wait another year before you sell your current home. The sales price will probably go up anyway.

And remember, you can find answers to all kinds of questions about the personal residence exclusions and other tax issues, free. Where? Where else? At TaxMama.com

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]

Download the MP3 (0:00min, 1MB) or listen now...

Ask TaxMama
Where taxes are fun and answers are free
www.TaxQuips.com
The number ONE free tax podcast online
IRS Announcement
IRS Issues Home Sale Exclusion Rules
IRS Publication 523, Chapter 2
Excluding the Gain on a personal residence
IRS FAQs
Sale of Residence - Real Estate Tax Tips - for 2009

# | Posted in Tax Quips | Comments » (2)



All Comments RSS

  1. Karla Butler Says:
    January 15th, 2009 at 10:12 am

    Re: can two houses be sold in the same year and get the 500K exclusion?
    Your answer was NO, and I agree. However you suggested that they sell their current house next year. I believe that there must be TWO years between these sales in order to qualify for the exclusion.

  2. Eva Rosenberg - Your TaxMama® Says:
    January 16th, 2009 at 08:04 am

    Well Karla,

    I think you're right. You may only get the exclusion every 2 years… Oh well. (That should be changed in today's economic climate, don't you think?)

    http://www.irs.gov/publications/p523/ar02.html#d0e3706

    Thanks

    Eva

Google Custom Search