OT: tax liability on selling a house ?

[Kbee3]

We own our own home and are in the process of shopping for a new place.....looks like Pennsylvania.
We'll soon be putting our current home on the market and are certain to sell it for a good bit more than we bought it for 15 years ago. What's the impact on our federal and state taxes in a year in which we sell the house...for a net profit ?
Anybody ?

 

[kjb32812]

http://www.irs.gov/publications/p523/ar02.html

Not sure what the state implications are in NJ

 

[mdk01]

If you're filing "married filing jointly" and owned and lived in the house for 15 years your basis in the house (purchase price + capital improvements) is increased by 500k for both federal and NJ tax purposes. If the appreciation is less than 500k you can NOT claim a loss. If above 500k you pay tax on that amount as a long term capital gain.

 

[RBS05]

http://lmgtfy.com/?q=tax+liability+on+selling+a+house+?

 

[Kbee3]

http://lmgtfy.com/?q=tax+liability+on+selling+a+house+?

Thanks.
BTW, what's a google ?

 

[BigLou]

If you're filing "married filing jointly" and owned and lived in the house for 15 years your basis in the house (purchase price + capital improvements) is increased by 500k for both federal and NJ tax purposes. If the appreciation is less than 500k you can NOT claim a loss. If above 500k you pay tax on that amount as a long term capital gain.

The rule is that the home most have been your primary residence for 2 of the past 5 years. Then you get to exclude $250K of gain if single and $500K of the gain if married filing jointly. NJ follows the Federal rule.

Most literature on this topic does not take the approach of the seller adding $500K to the basis but rather that any gain below the $250K/$500K threshold is excluded. You are supposed to report the sale on schedule D but the gain up to those amount sis not added into your taxable income.

 

[rutgersdave]

I have a question. If you sell a business and buy another business do you get any exemption like when you sell and buy another house? If you sell a business, is the tax rate 20% on the gain if you held it for over 10 years?

 

[taudelt73]

Listen to BigLou. He's right on the money with regard to the selling of your principal residence.
rutgersdave's question? You really should sit down with a knowledgeable accountant or attorney. It's a little more complicated. I would have alot of questions to ask before I could give you an answer plus I think you are confused on a couple of points.

 

[BigLou]

I have a question. If you sell a business and buy another business do you get any exemption like when you sell and buy another house? If you sell a business, is the tax rate 20% on the gain if you held it for over 10 years?

First off, the taxation of a gain from the sale of a house is no longer affected by buying a new house. That law changed many years ago and was replaced by the exclusion of $250K/$500K which was described above.

Regarding the sale of a business, it could be possible to defer a gain using a Section 1031 Exchange but with a business it might be tricky to pull off (as compared to real estate transactions where it is common). A 1031 Exchange has very specific rules and procedures that must be followed. Other than that there is no exclusion for deferring the gain on the sale of a business by buying another business.
The gain on the sale of a business can result in a 20% rate gain but it depends on how the deal is structured. Most sales of businesses are structured as asset sales. With an asset sale, the selling price is allocated to the assets being sold. If some of the gain is attributed to Inventory or Fixed Assets that have been depreciated, that portion of the gain may be subject to a higher rate. The portion allocated to "Goodwill" will be treated as a capital gain which, if the asset was held over 1 year, will be at 20%.

If the business is a corporation and you sell the corporate stock *meaning the corporation is now owned by the buyer) then any gain is treated as a capital gain. This is great for the seller and terrible for the buyer as there will be no amortization of the purchase price of the stock for the buyer.

A word of advise - in a sale of a business, from a tax standpoint, what is good for the seller is bad for the buyer. And visa versa.

 

[RUJohnny99]

Can I write off the loss on Schedule D when I sold my Honda Accord since people on this board told me it was the best investment I could make?

 

[DHajekRC84]

Listen to BigLou. He's right on the money with regard to the selling of your principal residence.
rutgersdave's question? You really should sit down with a knowledgeable accountant or attorney. It's a little more complicated. I would have alot of questions to ask before I could give you an answer plus I think you are confused on a couple of points.

Lou always puts it out there straight and easy to understand.
Isn't there a tax for moving out of NJ though? something like 3% (I thought I had heard this)

 

[BigLou]

Lou always puts it out there straight and easy to understand.
Isn't there a tax for moving out of NJ though? something like 3% (I thought I had heard this)

Well, I am a Tax Professional

NJ now tries to insure that someone moving out of state doesn't forget to pay tax that might be due on the sale of a property. The State requires that an amount be held back from the sales proceeds based on what they think the maximum tax would be (basically sales price times tax rate). The seller than has the opportunity to file a form which estimates what the actual tax is expected to be. If it is zero, as it often is in the sale of a personal residence, then the State instructs the attorney to release the escrow. If there is a lesser tax they ask for the remittance and then release the surplus. The seller than gets credited for the tax payment when they file their actual return reporting the sale. This also applies to the sale of any type of business assets and falls under the Bulk Sales Act which essentially says that the buyer might be held responsible for the seller's unpaid taxes if procedures aren't filed. Recently I have handled several sales of businesses (one for over $20 million) and have to say that the Bulk Sales Department in the Division of Taxation are fairly efficient.

 

[RutgersRaRa]

Can I write off the loss on Schedule D when I sold my Honda Accord since people on this board told me it was the best investment I could make?

You can write the loss off, but it's on Schedule HA.

 

[mdk01]

Well, I am a Tax Professional

NJ now tries to insure that someone moving out of state doesn't forget to pay tax that might be due on the sale of a property. The State requires that an amount be held back from the sales proceeds based on what they think the maximum tax would be (basically sales price times tax rate). The seller than has the opportunity to file a form which estimates what the actual tax is expected to be. If it is zero, as it often is in the sale of a personal residence, then the State instructs the attorney to release the escrow. If there is a lesser tax they ask for the remittance and then release the surplus. The seller than gets credited for the tax payment when they file their actual return reporting the sale. This also applies to the sale of any type of business assets and falls under the Bulk Sales Act which essentially says that the buyer might be held responsible for the seller's unpaid taxes if procedures aren't filed. Recently I have handled several sales of businesses (one for over $20 million) and have to say that the Bulk Sales Department in the Division of Taxation are fairly efficient.

New York and California have similar requirements with respect to sales of in-state residences by non-residents.

 

[Rutgers83]

I seem to remember an exit tax too '84. Basically additional NJ tax if you do not buy another home in NJ- I just checked and it is 2% but as stated earlier you may get back depending upon tax situation.

 

[mdk01]

I seem to remember an exit tax too '84. Basically additional NJ tax if you do not buy another home in NJ- I just checked and it is 2% but as stated earlier you may get back depending upon tax situation.

Tax rates in New Jersey were entire different universe back then. Talk about the good old days!!!!!

 

[DHajekRC84]

I seem to remember an exit tax too '84. Basically additional NJ tax if you do not buy another home in NJ- I just checked and it is 2% but as stated earlier you may get back depending upon tax situation.

yes, exactly what I was talking about. But B!G Lou gives me hope this was just somebody's mis-understanding of the "hold back" ( I recently experienced exactly what Lou said disposing of my Aunt's estate. Escrow'd a bunch of $ until I could provide letter from State releasing the estate of its tax liability..as in they got their cash :) ).

 

[rutgersdave]

Thanks Lou.