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Dana Fitzsimmons · Keller
Williams Premier Realty ·
November 1, 2004- Colorado Springs |
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Capital
Gains Exclusions
Determining your principal residence according to the IRS for
tax purposes if you own more than one home can be tricky, but
the IRS continues to refine the rules. First of all, principal
residence can take many forms: conventional home, condominium,
mobile home, house trailer, tenant-stockholder cooperative
housing unit—even a boat, as long as it has sleeping, cooking
and sanitary facilities (a bathroom).
The difficulties arise when you split your time between two
different properties during a year. Simply put, the IRS says
that your principal residence is the home you own and use as a
residence for “a majority of the time during the year.”
But of course, there are other considerations. For instance:
• the location of your property in relation to your place of
employment.
• the location where your family members reside.
• the address you use on your federal and state tax returns,
driver’s license, automobile registration and voter
registration card.
• the mailing address you use predominantly for bills and
correspondence.
• the location of your banks.
• the location, believe it or not, of your “religious
organizations and recreational clubs.”
To add another complication, but one that can work in your
favor: You can switch the designation from house to house each
year according to your personal tax strategies. For instance, if
you own a house in Nebraska and a condo in Aspen that has
appreciated substantially, you’ll want to pocket as much as
possible of that gain tax-free through a sale.
You can do this by making your Aspen vacation condo your
principal residence for two years running by living in it more
than six months each year. That qualifies the condo for the
maximum capital gains exclusion of $250,000 for single filers or
$500,000 for joint filers if you sell the following year. You
then switch your principal residence back to your house in
Nebraska. By living in it and using it for a majority of the
time during the two years following the condo sale, it should
qualify for the maximum capital gains exclusion.
Also, thanks to the 1997 legislation, you no longer have to be
concerned with replacing your residence with another house with
an equal or higher purchase price within a certain time frame.
No replacement residence is required now. Fixing-up expenses are
no longer a factor in determining the deferred gain with respect
to a principal residence. The bad news: taxpayers over age 55
are no longer eligible to exclude $125,000 of gain from the sale
of a principal residence. |
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First
Time Investor Series
I want to let you know to keep your eyes open for this column,
as I will be posting nuggets of information for those interested
in investing in income producing property. Each week I will
address an area.
Taking the step from home ownership to investor seems like a big
step, but if you break it down into a series of baby steps, you
too can be a real estate investor.
The most important part of investing will be addressed next
week; Credit Fitness. Keeping your credit in tip top shape is
something you want to always work on and improve.
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Condo,
PUD, Co-op: What's the Difference?
Condos: Walls, floors, and
ceilings owned by all residents; HOA dues; covenants,
conditions, and restrictions; value depends on the desirability
of entire development.
Planned Unit Development (PUD):
Individuals own structure and some land.
Co-op: Corporation made up of all
tenants; larger units have more power in how building is run;
fees for taxes, mortgage, repair, improvement; heavy scrutiny of
financial, personal history.
Townhome: Not a form of ownership,
but a term for an attached row house.
Advantages of each: Prices often
lower than for single-family home; maintenance minimal or
nonexistent; safety in “cluster” environment.
Disadvantages: HOA dues; CCRs may
be complex. |
Investment
Properties for Sale
For investment property for sale in Colorado Springs, go to:
www.coloradospringsinfo.net. If you are interested in buying or
selling real estate, please give me a call. I can help you find
an experienced and knowledgeable REALTOR in any town. |
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Equal Housing Opportunity
If you have a brokerage relationship with another agency, this is not intended
as a solicitation.
All information deemed reliable but not guaranteed.
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