Q. I plan to sell my house in the spring of 2012 and relocate to another state. After I get a job and become familiar with the area, in about 18 months, I would like to buy another house. How long can I wait to buy a house before I have to pay capital gains on the money? Where would be a good place to invest or put the money until that time? -- Homie A.
The Brain hopes the housing market sees an upturn before your target selling date. But then again, a housing recovery will mean a higher purchase price for your new home.
If you are single, you can sell your home and any gain up to $250,000 is not taxable, and you do not have to ever buy another house, said Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna. If you are married you can exclude up to $500,000 in gain.
Meckler offers this example: If you are single and you originally paid $250,000 for your house and over the years you spent another $100,000 on improvements, the cost basis in the house would be $350,000. If you now sold it for $550,000, that would be a net gain of $200,000.
“You would not owe any capital gains or any form of taxes,” Meckler said.
You are also under no constraints to ever buy another home again. This law came into effect in 1997, under the Taxpayer Relief Act of 1997, he said. As always with tax rules, there are other qualifications you must pass.
“The individual or the couple need to have owned and lived in the property as their main residence for at least two years of a five-year period ending on the date of sale to qualify for the exclusion, and they may not have excluded the gain of another personal residence within the two-year period ending on the date of sale,” said Robert Bacino of Insight Financial Services in Flemington.
He recommends you consult with your tax preparer with regard to your particular circumstances in computing the actual gain or loss on the sale of the personal residence -- including state tax laws -- to determine to what extent the federal exclusion may apply and to properly report the sale on your personal federal and state income tax returns, Bacino said.
Now to the cash you’ll have to park after selling your current home but before you buy the new one. Meckler recommends you stay very conservative because you’re working with a relatively short time horizon. “You could look for a short term CD at the bank or money market account,” he said. “I would not recommend you investing in the stock market unless you had a five-year time frame.”
Good luck with your move, and Jersey will miss you!
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