Under two year rule: J Hyre - Posted by sam

Posted by Sue(NC) on May 14, 1999 at 08:16:37:

I wasn’t thinking of 121(g) with my comment about sales prior to 8/5/1999, but the following:

Section 312(d) of Pub. L. 105-34 provided that:

‘’(3) Certain sales within 2 years after date of enactment. -

Section 121 of the Internal Revenue Code of 1986 (as amended by

this section) shall be applied without regard to subsection

©(2)(B)
[reduced exclusion due to medical/job/unforseen]

thereof in the case of any sale or exchange of property

during the 2-year period beginning on the date of the enactment of

this Act if the taxpayer held such property on the date of the

enactment of this Act and fails to meet the ownership and use

requirements of subsection (a) thereof with respect to such

property.

Under two year rule: J Hyre - Posted by sam

Posted by sam on May 13, 1999 at 09:36:18:

Question for you CPAs and attorneys. Does anyone know the tax code that relates to the sale of real estate under the 1997 changes? My CPA and I are trying to verify the tax changes on sale of my primary residence. Initially I thought the change allowed you to apply the time you lived in the property (even if you rented) to the two-year rule. I stand to lose about 6K on the sale of my primary residence. I really don’t to wait another year to sell the place. If I have the code I can look it up on IRS.com.
Thx in advance

that other two year rule - Posted by BankRobber

Posted by BankRobber on May 14, 1999 at 09:43:48:

I am not sure which “less than two year” rule to which you are referring. But there is another in addition to the ones outlined below. If you own a primary residence less than two years you can defer a fraction of the taxable gain based upon the percentage of the two year period you owned the property (75% if you lived there 1.5 years, 50% if you lived there 1 year). I beleive you are out of luck if you rented the property out during any of this period, but there may be further guidelines regarding this that I am unaware of.

Re: Under two year rule: J Hyre - Posted by Sue(NC)

Posted by Sue(NC) on May 13, 1999 at 20:14:05:

OK, so I look for loophoes…

I think that there is a proration that you can take any year if you are under the 2 year limit due to a medical condition or job cimcumstance.

Additionally, this year (until 8/5/99 I think) there is a proration allowed WITHOUT the medical or job circumstance test if you owned the home prior to 8/5/97.

Remember also that the proration applies to the allowable exemption, NOT the amount of gain: If you have 100K in gain and lived in the home 1 year and meet the reduced exemption criteria, the entire gain is exempt (your prorated allowed exemtion is 125K for single filers).

Those guys… - Posted by JHyre in Ohio

Posted by JHyre in Ohio on May 13, 1999 at 15:54:08:

sure are fast. Since Bronchick gave you the correct cite (as one would expect), nothing for me to answer. Now if I could only get him to show up at my job…I know, fat chance!

John Hyre

Re: Under two year rule: J Hyre - Posted by Dave T

Posted by Dave T on May 13, 1999 at 14:03:27:

Section 121 covers the capital gain exclusion on the sale of your principal residence. However, if you stand to take a 6K loss then the 2 year ownership and occupancy rules won’t be a factor.

The last time I checked (before the 1997 Taxpayer Relief Act), your principal residence is not considered a capital asset when reporting a loss on the sale and therefore the loss is not deductible. You can convert your principal residence to a capital asset by operating it as a rental property. If after a reasonable time (generally believed to be about 2 years), you still want to sell at a loss, then you can claim a capital loss on the sale.

Re: Under two year rule: J Hyre - Posted by Bronchick

Posted by Bronchick on May 13, 1999 at 09:52:40:

The rule is ownership and use as a principal residence for two of the last five. IRC Sec 121

Re: Under two year rule: J Hyre - Posted by Dave T

Posted by Dave T on May 13, 1999 at 21:39:21:

To use the capital gains exclusion:

During the five-year period ending on the date of the sale or exchange, the taxpayer must have owned and used the property as a principal residence for periods aggregating two years or more (Sec 121(a)).

If a taxpayer acquired his or her currrent residence in a rollover transaction, periods of ownership and use of prior residence can be taken into account in determining ownership and use of the current residence. Therefore, the holding and use periods prior to August 5, 1997, FROM A HOME THAT PREVIOUSLY USED THE PRIOR “ROLLOVER” PROVISION, may be “tacked on” or used in determining both the ownership and use test under the new exclusion provision [Sec 121(g)].

The ownership and use tests do not have to be met simultaneously. However, satisfaction of both conditions must occur within the five-year period ending on the date of sale or exchange. In other words, a tenant who purchases the home can count the time as a tenant as part of the use requirement. Also, a homeowner can rent out his or her home and still count that time toward the ownership requirement [Rev Rul. 80-172, 1980-2 CB 56].

Only one year is required for the physically or mentally incapacitated. The two-of-last-five-year rule was liberalized to include a taxpayer who, during the five-year-period (1) owns and uses the residence for at least ONE YEAR, and, (2) becomes physically or mentally incapable of self-care during the five years, thereafter residing in a state-licensed facility (including a nursing home)[Sec 121(d)(6)].

If the homeowner can not meet the two year rule, three exceptions still permit the homeowner to exclude some of the gain. Only a portion of the gain is generally taxable even if the taxpayer (a) cannot meet the two of last five years ownership test, (b) cannot meet the two of last five years occupancy test, or © has used this exclusion within the last two years. If the reason the homeowner cannot comply is because of (1) change of place of employment, (2) health, or (3) other unforseen circumstances to the extent provided in future IRS regulations [Sec 121©(2)], the taxpayer will still be able to exclude the fraction of the gain, the numerator being the shorter period of (1) the use period or (2) the period between the two sale dates, and the denominator being two years. The Tax Technical Corrections Bill of 1997 provides for a proration of the $250K ($500K MFJ) exclusion rather than the gain. This would permit $20,833 of the gain to be excluded for each MONTH a married homeowner meets the ownership, use, and “not-two-year” rules. In six months, the allowable exclusion would be $125K.

Re: Under two year rule: J Hyre - Posted by sam

Posted by sam on May 13, 1999 at 14:13:30:

Thanks for the quick response. My initial post may have been a bit confusing. The loss would result from the gains on the sale. The FMV has increased substantially over the last 13 mths. Thanks again.

Re: Under two year rule: J Hyre - Posted by Sue(NC)

Posted by Sue(NC) on May 13, 1999 at 20:18:18:

With one addition- if your spouse was a 2-year-of-5 occupant (or even a tenant) in the home you owned for 2 years, her tenancy can bump your exclusion to 500K, even though she wasn’t an owner.

Best post I’ve seen on 2-year rule… - Posted by JHyre in Ohio

Posted by JHyre in Ohio on May 14, 1999 at 10:22:35:

I’d print this one out.