Capital gains on principal residence - Posted by Darin in CA

Posted by Terry (Houston) on February 04, 2001 at 18:38:12:

Thank You for the post!

I like the doodad goal. Gotta put that to work.


Capital gains on principal residence - Posted by Darin in CA

Posted by Darin in CA on February 03, 2001 at 12:23:03:

I have a capital gains question on my house. I purchased my house about 7 months ago. I’m thinking about selling. My properties value has increased about 80,000. I would net about 160,000 on the sale. Will I have to pay gains on that money? What is the 2 year rule? I was told about a new gains law that I don’t remember the rules. Can someone please help me? Thank you.

Capital gains-princ residence - 2 yr rule loophole - Posted by Diane Kennedy

Posted by Diane Kennedy on February 03, 2001 at 17:17:35:

There are a few other ways around the 2 year rule. If you move because of a “hardship” case which means you are forced to change due to employment, health or “unforseen” circumstances, you can then prorate the exclusion. By the way, the IRS has not yet defined “unforseen” circumstances.

Another idea might be to convert the property to rental and then eventually Section 1031 (Starker, Like Kind Exchange) the property to another new property.

In both cases, run this by your tax advisor to make sure you are fitting within the guidelines.

Congratulations on the gain!

Re: Capital gains on principal residence - Posted by Dave T

Posted by Dave T on February 03, 2001 at 17:06:57:

To determine the taxable profit you will have on the sale of your house, subtract your purchase price from your sale price. Now subtract your selling expenses and cost of any capital improvements you made in the last seven months. The final answer is the amount of your taxable profit and this number may be different from your “net on the sale”.

Since you have only owned the house for seven months, capital gains tax treatment does not apply. Your profit will be taxed as ordinary income in the year of sale. The tax you pay on your profit will be computed at the same tax rate as the tax you pay on your salary.

If, however, during the five years prior to the sale, you owned and occupied the house for (at least) two years, then the first $250K of your profit from the sale will be excluded from capital gains taxes entirely ($500K if married filing jointly). There are other restrictions that apply, but in a nutshell, this is the 2 year rule.

Hope this helps.

Re: Capital gains on principal residence - Posted by Gary

Posted by Gary on February 03, 2001 at 12:34:05:

I believe you have to live in your principal residence 2 years of the last five years for the capital gains exemption. Of course, you could sell and buy another home of equal or greater value…Not sure of any new rules

Re: Capital gains-princ residence - Posted by DavidV

Posted by DavidV on February 04, 2001 at 11:42:51:

Great to have a CPA posting too. If one sells their principal residence after a year would one be entitled to a portion of the tax exclusion. For example could i get 50% (125k) after one year, assuming i haven’t used this in the past 2 years?

Re: Principle residence-Asset or liability? - Posted by Wayne-NC

Posted by Wayne-NC on February 03, 2001 at 18:14:35:

I have the same question as Terry. Then I’d like to “open a can of worms”. Others can then join in the discussion.

Is this the Diane Kennedy - Posted by Terry (Houston)

Posted by Terry (Houston) on February 03, 2001 at 18:01:38:

From Inc. and Grow Rich and Roberty Kiyosaki fame?

Either way we love the idea of great CPA advice here on the board.


Re: Capital gains on principal residence - Posted by Nate

Posted by Nate on February 03, 2001 at 14:02:51:

Not sure about the “2 year rule”, but I do know that the “roll over” exemption Gary mentioned DOES NOT exist anymore.

What you do with the money from the sale is now considered irrelevant for tax purposes.


Re: Principle residence-Asset or liability? - Posted by dewCO

Posted by dewCO on February 03, 2001 at 20:27:02:

Strictly speaking it’s a liablity, but for practical purposes for the vast majority, of course it is an asset, as the loan balance gets paid down/off and the value appreciates (even if it doesn’t go straight up), it is the largest potential “asset” that most folks will ever have.

Yes - Thanks for the welcome. - Posted by Diane Kennedy

Posted by Diane Kennedy on February 04, 2001 at 16:21:59:

Wish I could comment on more items, but unfortunately my schedule keeps me hopping…especially in tax season.

Couple of questions I’ll respond to at once -

  • way around the 2 yr rule. Bottomline, there is a loophole on this. Your own circumstances will dictate whether it is available to you or not. Please see my previous posting on IRS rule. IRS Code Sec 121.

  • Advise for someone starting. Know where you are financially. Know what you want (goal must be clear, concise and measurable) and build the team that has the experience and vision that you want. is a great source for ideas and encouragement. ALWAYS get legal agreements (rent to own, lease option, anything!) reviewed by a lawyer in your home state. Free advise (from someone who doesn’t know your circumstances or have the proper experience) will likely be the most expensive advise you ever receive.

  • Is a principal residence an asset or a liability? How many postings has creonline had on that one already, I wonder? Rich Dad definition of an asset is something that puts money in your pocket. Period. Your house is a doodad under that definition. Granted it’s an appreciating doodad (not like an Armani suit), but it does not put money in your pocket. That said -my husband and I are 2 weeks away from completion of construction on a 2nd residence in Reno, NV. That’s a big doodad! Our personal rule is that 30% or less of our total net worth is tied up in doodads. That just motivates us to build up the rest of our real estate portfolio so we can buy more doodads. And, I can tell you that Robert Kiyosaki really likes doodads. Doodads are the reward for a job well done. Just recognize them for what they are and call them by their correct name.

Phoenix, AZ is going through the beginning of a slump as dot commers are getting laid off. I figure we’ll start seeing the $500K house market get flooded as they try to unload their homes. How much better off would be they have been if they had instead bought a $200K personal residence and 3 100K rentals (that generate passive)? It’s all about ratios…

Sorry I couldn’t respond to more questions.

Re: Capital gains on principal residence - Posted by Gary

Posted by Gary on February 03, 2001 at 14:32:52:

Nate is right about the rollover clause, my error. I looked up the special rules for determining capital gains on principal residences (your home). First, if you lived in your home for two years out of the five years prior to the sale of your home, the first $250k of capital gain (single filers) or the first $500k (joint filers) is tax exempt. The other possibility, is that you did not live in your home for two years out of the last five, as is this person’s case. Then, you can still qualify for the 250k/500k tax exempt status if you have not sold or exchanged another principal residence two years prior to this recent sale of your residence. I know that sounds a bit confusing, but sounds like the feds wanted to close a loop hole for people that would buy a house, live in it and renovate it for a year, sell at a profit, roll it over into another house of equal or greater value, and repeat the process tax free. Basically, the law is saying you can’t live in two different main houses within a two year period and claim the capital gain exemption…Feds are always looking for a way to kill the American spirit!

Re:Home an asset or liability - Posted by Wayne-NC

Posted by Wayne-NC on February 14, 2001 at 08:37:32:

Diane, thanks for your response. I have read all the books and listened to the 2 tapes that Robert has (1 with you on it.) I would like to debate this subject a bit if I may. I know Roberts view of a home, but what is the alternative to buying the doodad we call home? It is renting unless you buy multifamily and live in one. I’m sure you know the benefits of home ownership. The tax advantages, equity build-up, and mortgage amortization is more than a reason to call it an asset. If it weren’t for my buying my first doodad I could not have borrowed on the asset portion to start my RE portfolio of 7 and soon to be 8 homes in 3 years. I quadrupled my net worth as well. Yes, it did take money out of my pocket but look at what I did with it. Maybe I am an unusual situation but without that asset I could not have started. I have been saying for many years that “it’s not how much you make but what you do with what you make!” Roberts books say that in detail and that is why I liked them so much. I only d

Re: Yes - Thanks for the welcome. - Posted by Kate (VA)

Posted by Kate (VA) on February 05, 2001 at 08:21:29:


First, I just want to say that I am thrilled to see you posting on this board. I know it’s a busy time for you but I hope you’ll ‘pop-in’ as often as your schedule allows.

Second, I have the tape set you made with Robert Kiyosaki, ‘Your 1st Step to Financial Freedom’, and it mentioned two follow-ups to that set (2nd Step and 3rd Step). I have not been able to find them anywhere. Where can I get them?

Thanks very much,