Follow rules for taking gains-tax exemption


Q: My question involves the one-time $125,000 capital gains tax exclusion that people age 55 or over can claim when they sell a home. Can I sell my house at age 53 years and six months, not buy another house, and then wait until I am 55 to exercise my one-time capital gains exclusion? Also, what are the rules if two ,, individuals over 55 are contemplating getting married, and both own homes?

W. Gaddis, Bel Air

A: Technically speaking, if neither you nor your spouse is at least 55 years old when you settle on the sale of your existing house, then you do not qualify for the IRC Section 121 one-time capital gains tax exemption that allows older homeowners to keep up to $125,000 of their resale profits tax free.

The other two requirements for the tax exclusion are:

* The property sold must have been your primary residence for at least three of the last five years;

* And neither you nor your spouse may have ever taken this exclusion before.

Since you have at least two years to rollover your gain from the sale of your existing home into the tax-basis of your next home, you might want to consult an accountant or tax attorney to see if you can get a tax opinion that will allow you to structure the sale of your house so you can claim the tax exemption.

On the second point: I consulted with a financial planner, who advises that if two individuals over age 55 are planning to get married, and both of them own homes, then financially it is better to sell and settle on the two houses before the marriage so that both parties can take advantage of the $125,000 tax exclusion assuming that neither party has taken a previous exclusion exemption.

In addition, if one of these older newlyweds has already used the $125,000 exclusion, then it would be more advisable to sell the other's home, take the exclusion before the marriage, and then live in the home of the spouse who had previously used the $125,000 exemption.

It has been suggested by real estate and home lending sources that Congress should now increase the limit on how much gain can be excluded -- the exemption was last raised, from $100,000 to $125,000, in 1981.

Copyright © 2020, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad