Complex Question For Using Capital Losses &/or Home Exclusion
Input really appreciated on how I can best strategize to use up about 50k in capital losses (my deft stock trading skills...), keeping the following in mind:
1) I bought a HUD foreclosure Dec 03 AS owner occupant - my primary residence; situations changed, and just sold it; owned for 9 months is all, but moved over 50 miles away because of work, so I could use the special IRS allowance for a prorated exclusion from capital gains (had 30k gain). Should I take this to exclude tax on 11,250 of the 30k gain for the 9 mo I owned it, then use the cap losses I have to offset the tax on the other 18,750 of gain, or is there a better way to preserve all my cap losses for a future deal? I own no other property, am renting an apt now, and am looking to buy a fix & flip maybe before I buy a primary residence again, to use up those cap losses by earning capital income. I'm self-employed and can do the work.
I don't think I can buy another HUD as owner occupant right now, but I could choose to live in whatever I buy next rather than continue to rent an apt while I complete the fixup, and I wondered if I could then just keep for the remaining 15 months of the 24mo clock, and still have the cap gains exclusion also apply on this 2nd house, without tapping into any of the cap loss kitty yet? I.E., How can I best use both my cap losses up asap, and take optimal advantage of the home exclusion. I'm very flexible on where I can live now. Many thanks to all. :-o
It seems pretty clear to me, as a layman and not as an accountant or other professional, that the "unforseen circumstance" applies here because of your change in employment.
However I need to correct your thinking here. It is not your gain that is prorated here--it is the total gain exclusion.
Since you lived in this home for 9 months that is .375% of the 24month requirement. Assuming you are single as at 24 months you would qualify for a gain exclusion of $250,000 you multiply the $250k by .375 = $93,750. This is your new capital gain exclusion amount.
Since you only made $30k on the gain of this property (congrats at that) you are well within the allowable gain for the excusion. You can take 100% of your proceeds and move on to the next property.
There are no formal documents necessary for this exclusion but I would advise you to speak with your tax professional regarding proper documentation in case of an audit. It is completely your burden to prove your unforseen circumstance. This should be documented well.
I'm sure this is good news and I'm happy for you. GOOD LUCK
Wow; that is greaaat news - you just made this a lot simpler now!
The next piece is then to determine IF I can purchase another HUD foreclosure house as owner occupant - even though they ask if I've done so in the past 24 mo, which I have of course. If the IRS allows me to essentially start over with my primary res, would that carry over to HUD as well? It is not ez to muddle thru the maze of HUD depts to find out so far. I just figure that unless I have an authorization from them I'll be denied access to the owner-occupant bidding?
Obviously, I have an advantage in finding a fixer house IF I can bid as OwnerOcc. I presume I'd need now to start the 24 mo clock again, in light of this new tip?
The IRS says that if you have lived in a property for 2 out of the last 5 years, you can take the exclusion.
HUD has nothing to do with the IRS so if HUD had a rule that you can't buy more than one owner occupied, then thats the rule.
As soon as you do buy a house (any house) and live in it for 2 years, you can qualify for the exclusion.
Thanks for the help myfrogger; along with HUD'd rule that I confirmed today, my choices are now simpler, although not as attractive as being an owner-occupant bidder; but HUD won't allow buying a HUD foreclosure as O/O more than once every 24 mo.
You'd think - well maybe not...that HUD and IRS could check each other's page now and then......
8-)