Advice on buying second house

Stay in it until you've both owned and lived in it for 2 years. Given the rest (unquoted) of your post, you have no alternative.

-- Phil Marti Clarksburg, MD

wrote

You would have to live in the condo for at least 24 months to avoid the gains (up to $250K/$500K married)

No.

You have to live in the condo for 24 months to avoid up to $250K of the gains ($500K is married)

About the same.

Yes. And the'll ask what you intend to do with the house.

Yes.

Yes.

The lender may be a bit skittish on lending on a property that will remain vacant for that long. They may also have legitimate concerns about your ability to make two house payments.

-- Paul A. Thomas, CPA Athens, Georgia taxman at negia.net

1. Qualify for IRC 121
2. Maybe, see #1
3. Maybe see IRS Bulletin 2005-7
4. You can do either but if you are honest the taxes may be different
5. and on, ask your banker

BC

You must have lived in it as your main house for at least two years of the last five. If you stay in it for 6 more months, you'll meet the test -- and you would not have to pay taxes on the first $250,000 of _profit_ ($500,000 if MFJ).

No. That won't work, because you won't have *lived* in the condo for 2 years.

Yes, you have to physically be in the condo (or at least be able to claim it was your main home) for 2 full years. And your plans to rent it would corrupt your status as far as "tax-free" profits are concerned, not to mention creating a rental property situation which -- from your questions -- you shouldn't get into without professional guidance.

You're treading on thin ice. The plan you seem to be envisioning sounds like tax evasion. As for the mortgage process, they are interested only in the appraised value of any property vs. your loan request -- and compared to your ability to repay the loan. Be patient. Wait 6 months, and do everything in a straightforward manner. But if you want to buy another house "because you love it" ... you should be prepared to carry the cost of it as a second home, which you maybe use for weekends, until you've met the requirements for your present home's sale to be free of capital gains tax on the aforementioned $250,000 of profit. (And, btw, don't plan to count your ownership of the "new" home until you actually have sold your condo and have moved into it as your main home.) Bill

Not sell it.

No. You have to live there as well. Which sort of defeats the purpose of having bought the second house.

It's crystal clear. You have to LIVE there.

If you have lender questions, you should ask a lender.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062

You WILL pay capital gains. You must own and occupy the condo for 2 years out of 5 to avoid capital gains.

You WILL pay capital gains. You must own and occupy the condo for 2 years out of 5 to avoid capital gains.

Generally, they won't care about what you're going to do with the condo, as long as your total income and debt service requirements meet their underwriting standards. They will care about your intentions for the new house as they will charge you a lower interest rate on an owner-occupied property than they will on an investment property. Ira Smilovitz

Did you continue to make the condo your primary residence for those 6 months? If so, $250,000 of gain is excludible ($500,000 on a joint return if your spouse met the 2 year use test). If not, then you do not appear to qualify for an exclusion.

Once again, you have to meet both a 2 of 5 year ownership test AND a 2 of 5 year primary residence test.

Darned if I know. I'm not a banker.

Yes it matters since if the new house is your primary residence from day 1, you won't be able to meet the 2 year primary residence test on the old house.

You can say anything you like but your gain is excludible only if the condo is your PRIMARY residence for two years.

To get an exclusion for the capital gains, you must OWN and OCCUPY the condo as your PRIMARY residence for two years out of the five years prior to sale. You don't appear to meet any of the exceptions or special "unforseen circumstances".

OCCUPY means "live in"

Your mortgage arrangements have NOTHING to do with the taxability of your sale. What you tell your banker is between you, him, and the bank fraud people.