HOME TAX BREAK: LET SELLER BEWARE : OVER-55 EXEMPTION IS A ONE-TIME AFFAIR.Byline: Chet Currier Associated Press Associated Press: see news agency.
Associated Press (AP)
Cooperative news agency, the oldest and largest in the U.S. and long the largest in the world.
To any homeowner whose plan for retirement includes a move from one residence to another, a special item in the U.S. tax code looms very large.
For want of a catchier name, it's it's
1. Contraction of it is.
2. Contraction of it has. See Usage Note at its.
it's it is or it has
it's be ~have called the ``one-time one-time
1. or one·time
a. Occurring or undertaken only once: a one-time winner in 1995.
b. exclusion of gain for people age 55 or older,'' in the words of the Internal Revenue Service document (Form 2119) that is used to report home sales.
It permits people who fit that age requirement to cash in up to $125,000 in profits from the sale of a home without having to pay capital gains taxes.
But nobody is allowed more than one passage per lifetime through this loophole An omission or Ambiguity in a legal document that allows the intent of the document to be evaded.
Loopholes come into being through the passage of statutes, the enactment of regulations, the drafting of contracts or the decisions of courts. , and its benefits can be diminished di·min·ish
v. di·min·ished, di·min·ish·ing, di·min·ish·es
a. To make smaller or less or to cause to appear so.
b. or lost entirely if the trip isn't is·n't
Contraction of is not.
isn't is not
isn't be carefully planned.
The idea behind the exclusion is to allow people who have built up substantial equity in a home over the years to convert some of that asset into a more liquid form as they reach or approach retirement.
Suppose, for the sake of illustration, that you and your spouse spouse A legal marriage partner as defined by state law own a home bought years ago for $50,000, and now worth $225,000. The kids are grown, and you want to sell the old homestead and move into a smaller place that's on the market for $100,000.
If neither you nor your spouse is 55 years old yet, the change of address will leave you with a $125,000 gain on which you will have to pay federal income taxes of as much as $35,000.
But if either of you has passed your 55th birthday by the time you sell the old house, and you elect to take the exclusion, you won't owe a penny to Uncle Sam Uncle Sam, name used to designate the U.S. government. The term arose in the War of 1812 and seems at first to have been used derisively by those opposed to the war. Possibly it was an expansion of the letters "U.S. . The extra $35,000, if invested in a bond paying 7 percent a year, can mean a difference of more than $100 a month in your cash flow.
It's important to be aware that the rules covering this process are complicated - and inflexible. If you make a misstep somewhere in following them, it's easy to trip yourself up.
First of all, tax experts say, make sure you meet the eligibility tests for the exclusion before you sell. In addition to the age minimum, you must have owned and lived in the old home for at least three of the five years preceding the sale.
``Don't make the mistake of selling your residence in the year you become 55 but before your 55th birthday,'' cautions the Ernst & Young Tax Guide.
In addition, many people who are eligible, but have only a relatively small exclusion they can claim, have to decide whether to take it now or forgo it, expecting that they might have a bigger gain to exclude sometime in the future.