I have lived in by home 17 years and will be retiring and relocating. I could have as much as $500k in capital gains when I sell my current home. I am single and live alone. If I spend all I receive from my current home on a new home when I relocate, will I have to pay CG on the $250k that exceeds my single person exclusion or will be forced to buy a lesser home than I currently have?
The capital gain exclusion on the sale of your house is independent of what you decide to do about living arrangements in the future. The rules about deferring capital gains by investing in another residence were eliminated many years ago.
Ira Smilovitz
Time for you to get married, Bill.
========================================= MODERATOR'S COMMENT: Sorry, but that won't work unless he has a girlfriend that has lived with him in the house for the last two years or more.
Yes, you will have to pay federal cap. gains tax rate on the gain above the Sec. 121 exclusion amount, most likely Net Investment Income tax too.
No, you are not "forced" to buy any type of home at all. As previously mentioned, what you do with your profit after taxes has nothing to do with its taxation.
Perhaps a like-kind exchange of property would allow you to defer some or all of the gain, but you should really talk with a professional to see how that might apply to your situation.
No like-kind exchange available on your residence.
You know, I almost stopped to look that up, I should have. Thanx for the correction. Expert, not! ;-)
Of course, he could change his residence to rental property and qualify for like-kind exchange. And, with proper timing, get both like-kind exchange and some Sec. 121 exclusion.
But this may not serve his true objective.
Rev. Proc. 2005-14 has the guidance on how sec. 121 and sec. 1031 are to be applied to the same property that qualifies for both. This is possible because Sec. 121 does not require that the property being sold is the principal residence at the time of sale.
since OP has not yet sold his home, he has time to do a bit of tax planning.
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