Capital Gains Home Sale
Q: If I sold a home in Jan.'97 how long do I have to buy a new home w/o taking the capital gains in the '98 tax year(18 months?). Also, I assume I have to buy a new home equal to or greater than the sale price of my previous home.
A: -If you fail to meet the holding period requirement, the tax would be paid in *1997* and not *1998*. -You have until Jan date of sale 1999 to purchase or improve a home so that its basis will be equal to or greater than the sales price of the old home. If you do not do this, you will have to amend the 1997 return and pay tax at that rate. -To expand a bit - you must report the home sale in '97 on form 2119. If you expect to buy a home within the two year period, you can check the box that indicates this. Then when you do in fact, buy the new home you would again file the 97 form 2119 to show the rest of numbers. You have two years from the date of the sale to buy AND occupy the new home - so don't cut it too close. There are some nasty examples of people who were building the new home, experienced delays in construction, and therefore couldn't occupy the house within the two years. The IRS is VERY specific on this one. If you do not intend to buy a new home, you may as well bite the bullet and pay the tax now because the tax will be calculated from the date of sale on the home with interest and probably penalties added to it.
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