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Avoid taxes on home sale when moving in with friend

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Michigan

I'm going through an illness and have not been able to work, just got on SS disability, but my wife works. We are thinking of moving in with a friend and selling our home.

Is there a way to avoid taxes on the sale of our home, at most 15k, without purchasing another home? Much / all of the profit from a sale would go to paying off dept, much of that medical stuff, if that has any bearing.
 


TinkerBelleLuvr

Senior Member
If you have lived in your home for at least 2 of the past 5 years, then a portion of your gain is tax-free. If both you and your wife own the house, lived in the house 2 out of the past 5-years, then $500K of your gain is tax-free. If only one of you owns the house, that person has $250K tax-free.
 

FlyingRon

Senior Member
Ginny is spot on. Let me reinforce that you (horseeatingweeds) are thinking of some very old tax law. It no longer makes any difference whether you buy a new house to replace the one you are selling or not. The 2/5 exemption is the only one that exists. However, if you have rolled previous houses gains into this one under the old rule, you still have to use that rolled up basis.
 
This is our first house, I bought it before marriage and only my name is on the paper and have lived here for over six years.

So I was confused then....

Regardless, if you live in a house for 2 of the past 5 years $250 K of gains is tax free. Is there a name for that exemption, is it the 2/5 exemption? I couldn't find much under that.

So if I bought my home for 72K, having lived there for the past 6 years, and sold it today for - 82K, that $10K gain would not be subject to taxes?
 

abezon

Senior Member
It's called the "Sec. 121 Exclusion" because it's found in section 121 of the tax code. Unless the escrow company messes up, you won't report the sale at all.
 

FlyingRon

Senior Member
Here's a rather voluminous treatment on home sales from the IRS:

http://www.irs.gov/publications/p523/index.html
 

TinkerBelleLuvr

Senior Member
Geez you guys, putting out correct information on names. The regular folks are just happy to NOT have to pay taxes on the gain and just leave with happy smiles! Now I'll have to confuse my customers with the correct name. :mad:
 

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