profit from home sale

[markusk]

Almost two years ago, we had to move to another city due to a job change. We placed our home (a small condo) on the market for sale where it lingered on and on.... Because our equity was tied up with our old condo, my parents stepped in and helped us with a down payment to buy another condo in our new location.....for the last 22 months, we were juggling two mortagages.

Two days ago, someone made an offer to buy our old condo (hallelujah!!!) and we accepted. Just signed the papers today. Inspection should be a breeze. Settlement is in 6 weeks. On paper we are making a nice profit, but when taking into account the many months the property sat empty, 6% realtors' commission, and the local 1% transfer tax, we are just getting back our 20% down payment and the equity we've built up through mortage payments.

I learned a few lessions. First, don't buy a new home until you've sold your old one. Second, pick your realtor carefully. And third, if your home fails to get ANY offers for months, it's priced too high.

Anyway, as I was glorying in our salvation from our cash-flow problems, a sobering question started nagging me: do we owe tax on the sale of the condo?

Thanks,
markusk

[creditcardfree]

Probably not. If you lived in the condo for 24 months out of the last 60 months (5 years) and this was your primary residence, then your profit is exempt from taxes up to $250,000 if single and $500,000 if married.

Sorry your home wasn't priced right to sell. That is disappointing, but a good lesson learned.

[Ima saver]

Creditcard free is right. I have a friend that builts a house, moves in, sells it and keeps the profit. We should do that too, but dh is so busy all the time.

[ChimbleySweep]

Originally Posted by markusk

I learned a few lessions. First, don't buy a new home until you've sold your old one. Second, pick your realtor carefully. And third, if your home fails to get ANY offers for months, it's priced too high.

Your second and third lessons go hand-in-hand, don't they? I hate when realtors don't do their job!

I am no help on the tax question, just wanted to chime in and let you know I feel your pain!

[Ima saver]

The last time I gave my spec house to a realtor, she didn't even show it one time. Then i wound up selling it to a friend of a friend and had to pay her 1/2 the commission.

[poundwise]

Information

[markusk]

Originally Posted by creditcardfree

Probably not. If you lived in the condo for 24 months out of the last 60 months (5 years) and this was your primary residence, then your profit is exempt from taxes up to $250,000 if single and $500,000 if married.

Actually, we only lived in the first condo for 13 months. So I guess we will owe tax (capital gains?).

Originally Posted by ChimbleySweep

Your second and third lessons go hand-in-hand, don't they? I hate when realtors don't do their job!

We actually had two... The first one we had was very friendly and helpful, but did not know the neighborhood that well. We dropped the price once, but did not get any offers for 6 months, then we took it off the market. The following spring, we placed it on the market with another realtor. This one lived in the condo complex (in fact, he could see our unit from his kitchen window) so knew the area and was immediately available for any showings. Plus he also owned two units in the building and so had a vested interest in getting the best price. We stuck it out with him. We ended up dropping the price three times -- and the third time was the charm.

Originally Posted by poundwise

Information

Thanks for the link!

The "Home Sale Tax Exclusions: reduced exclusions" section was very helpful. Since we moved due to a job change but lived in our old home for less than 2 years, I guess we qualify for a reduced exclusion.

According to the formula given, I don't think we will be owing any tax: our "profit" from the sale of our condo is exactly 30k, and we lived there for about 390 days (30daysx13months). So 390 divided by 730 = 0.53. Multiplying the result by $250,000 gives about 133k for each spouse. So a profit of upto 267k would have been tax free - I wish!!! (Did I do that right?)

As it is, our "profit" is 30k. When you subtract the 6% commission and 1% transfer tax, it will be less than 15k. Factor in the months we were paying mortgage while it sat unsold, we actually lost about 10k.

[vishenda]

If the condo was your primary residence for the past two years, then chances are that you won't owe any tax. Any gain you have from the sale will be used to adjust the tax basis in your new home. For example: You originally paid $100,000 for the condo, and made permanent improvements for $20,000 (that means things like remodeling a bathroom, kitchen,etc.-not decorating items like paint). You now have a tax basis of $120,000. You sell the condo for $200,000, with 6% commission and 1% transfer tax. That gives you selling expenses of $14,000 (7% of $200,000). The net sale amount is $186,000 ($200,000 less $14,000 commission and tax). The total gain on the condo is $66,000 - the $186,000 net sale price less the tax basis of $120,000. If you paid $300,000 for your new home, the tax basis would be $234,000--$300,000 purchase price less the $66,000 gain on the condo. The real estate taxes you paid on the condo will be deducted on Schedule A, the same as you have always done. Be sure to check your condo closing papers to see if you paid any additional property taxes on there. Here in Cook County, Illinois, we have the most screwed up property tax system in the country. We're like a year behind on our assessment, so when we sell property, we have to pay the accrued property tax at closing.

Sorry to you had to learn some tough real estate lessons. There seems to be a lot of that going around lately!

[markusk]

Thanks for the additional info. We installed hardwood floors for about 7k and a new closet system for 1k -- I guess we lost more money than I thought. Anyway, I am still very glad and releaved to have sold it.

[tener]

22 months is a long time for a house to be empty, you should have tried your best to rent out the property, atleast that would have taken care of the mortgage