Capital Gains Tax - 'Use' test exemptions

Capital Gains Tax - 'Use' test exemptions

Investor · Indianapolis, IN · Member since 2013 · 27 posts · 5 votes

I'm looking for some feedback to get an idea on how much I'll need to put back for taxes on capital gains from the sell of my first home.

Scenario:

I purchased my home March 15th, 2013. I moved in the week after, and since I don't plan on selling for the next month or two, I should be over a year and a day (to have long term capital gain rates applied) but less than 2 years to pass the Use test to be exempt for the $250k capital gains. At this point, I'm looking at the possible exemptions to qualify for the reduced capital gain exemption. The only opportunity I see is that I purchased the house with a family in mind (long term girlfriend and her daughter living with me), and that relationship didn't work out. The devil's advocate in me would say that wouldn't count due to 'relationships come and go' and they possibly only look at marital situations (Publication 523 > Unforeseen Circumstances seems to point that way). Therefore, that would bring me to the fact that my ex should have been a Qualified Individual (she used it as her main home) and she did go on unemployment. I wonder if that would qualify as an Unforeseen Circumstance.

Finally, my mother lost her job, sold her home, and moved in with me while on unemployment as well. I don't think that could help my situation at all though.

Thoughts?

FWIW - Capital gains I'm estimating at this point between $15-30k. Not a huge amount but being new to REI and being my first accidental (long-term flip), I'd like to get a good handle on the capital gains tax.

0Reply
30 views

2 Replies

Jump to latestLatest
  • Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    12y

    Your capital gains tax rate depends upon your marginal tax bracket. The amount of your capital gain that keeps you in the 15% tax bracket or below, is taxed at 0%. The amount of your capital gain that pushes you from the 15% bracket to the next higher bracket, will be taxed at 15%. A 20% capital gains tax rate applies to the amount of your capital gain that puts you into the new 39.6% ordinary tax rate.

  • Investor · Indianapolis, IN · Member since 2013 · 27 posts · 5 votes
    12y

    @Dave Toelkes

    Thanks for the reply as I didn't know this is how the tax is applied. My question is in reference to my ability to avoid the tax based on the 2 year primary residence out of the past 5 years and the exceptions available to receive a pro-rated exemption amount.

    Based on salary, if I can't find any exceptions that apply to avoid the tax all together, I should pay 15% on the entire gain.

Join the conversationCreate a free account to reply, vote on answers and follow this thread.