Refuting "Facts" at RealtyTimes.com
It looks like we get to kick things off with a piece that proves the need for our website's very existence.
The well respected site Realtytimes.com posted an interesting article on its homepage today. Interesting, because if you try to follow the advice within, you'll wind up committing tax fraud.
Today, Diane Kennedy writes about the generous $250,000/$500,000 capital gains exclusion that homeowners can take on the sale of their homes. But in her second paragraph, she makes this assertion:
My first reaction to reading this was "That's just wrong!" But, always one to admit that things change, and I could indeed be incorrect, I decided to research the facts before sharing them. I went to the IRS website, which helpfully reinforced what I thought I already knew.
Just to clarify, yes, you are entitled to take a $250,000 capital gains exclusion ($500,000 on joint returns) on the sale of your home. But, like everything else in life, it's not quite as simple as that. Straight from the IRS, here are the requirements you'll need to meet in order to keep from paying taxes on the first $250,000/$500,000 profit on your home's sale:
"To be eligible for an exclusion, your home must have been owned by you and used as your main home for a period of at least two years out of the five years prior to its sale or exchange. The required two years of ownership and use during the five–year period ending on the date of sale do not have to be continuous. You can meet the ownership and the use tests during different two year periods. However, both tests must be met during the five–year period ending on the date of the sale or exchange."
In other words, yes, the IRS does take into account that you may have more than one residence and is, for once, lenient in its application of "primary residence." But you must have lived in the home for a total of two years out of the previous five. Applying Ms. Kennedy's advice, that you could live in a home for a couple of weeks and take the exclusion after two years, will almost certainly get you audited.
There are exceptions to this two-out-of-five rule. "Unforseen circumstances" such as a health crisis, change of employment, or military duty. To explore those exceptions further, read the IRS's publication "Topic 523" for more information.
In the meantime, we've alerted Realty Times to their error, and will wait to see a correction posted.
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