Need advice on house flipping tax

[Ddefense]

What is the name of your state (only U.S. law)?

 

[Ddefense]

My initial post failed. My wife and I currently live in our second home and October of 2016 will be 2 years here. Our first week here I was offered my dream job a long ways away. I have been commuting but it's time to move the family closer. Our tax representative said we'll be taxed capital gains if we sell prior to October. However, my wife will be switching jobs at the time of the move as well. Is there any way to avoid the additional tax penalty?

 

[FlyingRon]

It's not a tax penalty, you just aren't allowed to exclude the gain. First, when you say "second home" do you mean you own two homes? Was there any aggregate 24 months out of the past 60 where it was your principal residence? It need not be contiguous.

Actually, if you are relocating for a job, you are entitled to use the exclusion, but it must be prorated over the time less than 24 months. So if you move in March that would be (counting on my fingers) 16 out of 24 months so you can take 166,666. If your wife is also relocating her job, she can also claim her protation of 166,666 giving you a capital gain exclusion of $333,333. Remember the gain is the difference between the sales price and the purchase price, adjusted by any capital improvements made as well as the costs for selling the house (real estate commissions, fix ups done for putting it on the market, etc..).

 

[Ddefense]

Flyingron, thank you for the quick reply. It's the second home we have owned, but no this is currently our only residence. Does it matter at all if my wife's job is only part time employment? We have no where near $166,666 in equity here. Where can I find this written?

 

[davew128]

Clearly there are some relevant facts missing. Ron's answer was correct based on the original post, which left me wondering why the "tax representative" gave the answer they did.

Defense, why are you questioning your own tax person? Also google "Sale of principle residence" to explain this to you.

 

[FlyingRon]

Flyingron, thank you for the quick reply. It's the second home we have owned, but no this is currently our only residence. Does it matter at all if my wife's job is only part time employment? We have no where near $166,666 in equity here. Where can I find this written?

OK. In the tax code "second home" menas one you have in addtiiton to your "first home." I believe you can indeed both claim the prorated deduction.

 

[davew128]

Realistically, if you haven't lived in and owned the house for two years yet, how much could you have for a gain anyway??? Also, now, looking at the fact pattern a little closer, I'm not convinced theres a partial exclusion. Look to Reg. 1.121-3 and I think the fact that you stayed in the house might work against you.

In addition, a change in employment needs certain requirements to qualify under safe harbor provisions.

(c) Sale or exchange by reason of a change in place of employment
(1) In general. A sale or exchange is by reason of a change in place of employment if, in the case of a qualified individual described in paragraph (f) of this section, the primary reason for the sale or exchange is a change in the location of the individual's employment.
(2) Distance safe harbor. A sale or exchange is deemed to be by reason of a change in place of employment (within the meaning of paragraph (c)(1) of this section) if—
(i) The change in place of employment occurs during the period of the taxpayer's ownership and use of the property as the taxpayer's principal residence; and
(ii) The qualified individual's new place of employment is at least 50 miles farther from the residence sold or exchanged than was the former place of employment, or, if there was no former place of employment, the distance between the qualified individual's new place of employment and the residence sold or exchanged is at least 50 miles.
(3) Employment. For purposes of this paragraph (c), employment includes the commencement of employment with a new employer, the continuation of employment with the same employer, and the commencement or continuation of self-employment.

I see two problems here. One, is the new job (new being relative) 50 miles further away than the old job? If yes, then you're ok. If not, then you need to qualify based on facts and circumstances. That goes back to the question, is the sale of the home based on a change in employment? The examples in the regulations show a couple instances where someone doesn't meet the safe harbor for distance. The examples also show a proximate relationship between change in employment and sale (which not coincidentally is the first in a lot of factors considered).