Capital Gains Tax Question?

Question

I bought my first home in 2003 with a VA loan. I bought my 2nd home in Mar08 and started renting my 1st home. I am military (active duty Air Force). I just received orders to North Carolina and I want to sell my 2nd home. I bought it for $154500 and will sell it for $164,495, a difference of $9,995. 2 Questions. What is the tax % I will pay for selling early, AND is there a military tax break since I have orders (being I have 2 houses)?

Answer 1

In Australia your first home you buy you can rent it out for a period of 6 years and if you sell it with in those 6 years there is no capital gains tax so i would say speak to a consultant if its the same in America i would sell the first home avoiding capital gains

Answer 2

(Sorry, my mistake.  Copyediting again...)

Because you're selling because of a change of job location, you qualify for a reduced exclusion of approximately 1/6 to 1/4 of $250,000, which will cover your gain.  If you don't take the exclusion, you would be subject to short term capital gain on the sale, taxed at your normal rate.

If you were to sell your FIRST home more than 2 years after you sell your second home, but before Mar 2011 (plus up to 10 years of the time you are on "qualified official extended duty" after Mar 2008), you can exclude up to $250,000 of the gain from that home, excluding depreciation.



I didn't think the VA allowed you to rent out the house.

Answer 3

It appears you qualify for a reduced maximum exclusion of capital gain because of a change in place of employment.  If you use this exclusion, you pro-rate the maximum exclusion.

Your ownership of the second home was, say, six months, or 1/4 of the minimum time for the full exclusion.  So your reduced exclusion would be 1/4 of $250,000 ($500,000 if married).  This is more than enough to eliminate the gain on your second home.

The military do get a tax break in that they can extend the period of ownership up to 15 years and live in the home for only two years.  This may apply to your first home but not to the second home.  Keep in mind that if you use the exclusion for the second home, you cannot use it for the first home for two years.