# avoiding capital gains



## philm (Dec 16, 2014)

Hi There,

We have been fixing up a nice house in hopes of living there full time, currently we live in an apartment where our jobs are but the house is in a different county, my wife has had some medical problems lately and our debt is piling up. we were thinking of finishing up the house, trying to sell it and pay off our debt and try to start over, but its only worth it if i we can make a certain amount of money off of it, otherwise we will try to keep it. we will not make over $250,000 on the sale (we are hoping for around $140K), and i know you dont have to pay capital gains on your primary residence. we do not live there currently, but it was our plan for it to be our primary residence, its just we live in an apartment now were our jobs are before we move. Would someone just see it as an investment property and i would have to pay the capital gains tax on it? or do we physically have to live there first for a certain amount of time? Just curious, thanks.


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## ozarkchaz (Feb 4, 2005)

Generally a second home, and not your primary residence, is considered investment property. The IRS is due capital gains taxes for any monetary gain after the sale. (Minus expenses). And, Capital gains taxes on investment property are much higher than a personal residence. Putting the investment property in a trust may be a solution. (Consult an estate planning attorney).

As you may already know, For your primary residence, you have to reside there 2 out of the last 5 years, to eliminate the gains taxes. (Up to $250,000 per individual and $500,000 per couple).

Hope this helps.

Chaz


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## Nimrod (Jun 8, 2010)

ozarkchaz said:


> Generally a second home, and not your primary residence, is considered investment property. The IRS is due capital gains taxes for any monetary gain after the sale. (Minus expenses). And, Capital gains taxes on investment property are much higher than a personal residence. Putting the investment property in a trust may be a solution. (Consult an estate planning attorney).
> 
> As you may already know, For your primary residence, you have to reside there 2 out of the last 5 years, to eliminate the gains taxes. (Up to $250,000 per individual and $500,000 per couple).
> 
> ...


You are allowed to take this exclusion twice in your lifetime.


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## Scott SW Ohio (Sep 20, 2003)

Nimrod said:


> You are allowed to take this exclusion twice in your lifetime.


Nimrod, is this a recent change and if so do you have a source? My understanding is that the exclusion can be used any number of times. I searched a number of tax rules sources and cannot find any reference to the "twice in your lifetime" limitation you have stated. I myself have used this exclusion three times since it was introduced in the 1990s.


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## Nimrod (Jun 8, 2010)

This is what I was told when I sold my house 4 years ago. Seems they have changed the rules so you can take the exemption every 2 years as many times as you want.


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## Declan (Jan 18, 2015)

ozarkchaz said:


> Generally a second home, and not your primary residence, is considered investment property. The IRS is due capital gains taxes for any monetary gain after the sale. (Minus expenses). And, Capital gains taxes on investment property are much higher than a personal residence. Putting the investment property in a trust may be a solution. (Consult an estate planning attorney).
> 
> As you may already know, For your primary residence, you have to reside there 2 out of the last 5 years, to eliminate the gains taxes. (Up to $250,000 per individual and $500,000 per couple).
> 
> ...


A trust won't keep them from paying capital gains. The only difference is who pays the taxes--the trust or the settlor. Since this could be a short-term gains case, a trust would probably make it worse for them taxwise because gains treated as ordinary income in a trust is probably going to result in a higher tax rate on it than it would as straight personal income unless you are already in the top tax bracket. 

If you cannot qualify for the exemption, about the best you will be able to do is a 1031 Like kind exchange to defer them. Otherwise, you are looking at paying the tax (which honestly, isn't the worst tax in the world to be paying)


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## edcopp (Oct 9, 2004)

When all else fails, follow the directions.

The government is your friend.

Read the IRS code. (on line).:trollface


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## RosewoodfarmVA (Oct 5, 2005)

All this is assuming you will sell it for more than you purchased it, as the gains tax is only applied to the difference between purchase/sale price. For a $140,000 sale I can't imagine you're making more than 30-40k profit, therefore the tax implications are well below 10k, insignificant in the greater scope of what you're facing.

Another thing to consider is the possibility of renting it. This may provide just the $$ buffer you need to keep from going under financially. While not the lucrative option, if you were able to apply all the rent to your mounting bills it may enable you to keep the property in the long run...


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## Canyonero (Jan 20, 2016)

Well, if you've been an investor during the last decade or so, I hope you've kept track of any capital losses. Because it all comes out in the wash.


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