DEAR BOB: Regarding the capital gain $250,000 exclusion on the sale of a primary residence under Internal Revenue Code 121, I am aware there is a partial exclusion if the seller doesn’t quite meet the 24-month occupancy test. However, I have owned and lived in my home for several years, but my spouse has only lived here one year. Is his exclusion pro-rated? – Mary DiG.
DEAR MARY: No. You, as the qualified owner-occupant spouse, get the full $250,000 principal residence sale exemption of IRC 121.
However, if your spouse doesn’t meet the 24-month minimum occupancy test, there is no provision in IRC 121 for a partial second exemption. To qualify for a full $250,000 exemption, your spouse must occupy the principal residence at least 24 months before its sale.
There’s probably a very good reason. If all a single homeowner had to do was get married and move his or her new spouse into the home to get another $250,000 exemption (or at least part of it), there would be a long line at the wedding chapel. For full details, please consult your tax adviser.
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WINNING AN ARBITRATION AWARD IS JUST THE BEGINNING
DEAR BOB: My husband and I won a binding arbitration award through the American Arbitration Association against our homebuilder who had 30 days to pay us. It has now been 41 days and we have not heard anything about the money due to us. The award gives us money to have our home fixed and relieves the builder of liability for repairs. Whom do we contact to make the homebuilder pay us? – Nancy B.
DEAR NANCY: Winning an arbitration award is just the start. Now you have to attempt to collect your award.
Your attorney can best advise you how to do that under the circumstances of your arbitration award. I wish I could give more specific advice, but you apparently have a homebuilder who isn’t going to pay without a fight.
DO STATE HOME SALE TAX LAWS CONFORM TO FEDERAL TAX CODE?
DEAR BOB: You have answered many questions about how to use the federal Internal Revenue Code 121 principal residence home sale tax exemption up to $250,000 (up to $500,000 for a married couple filing a joint tax return). But what about state income tax laws? Do they conform to the federal guidelines? – Richard P.
DEAR RICHARD: Many states conform their income tax laws to the federal tax code. For example, where I live in California, most of our income tax laws thankfully conform to the federal tax rules, with a few exceptions. Of course, the tax rates are much different.
I noticed your e-mail is from Florida where there is no state income tax. However, if you own real estate in another state, you’ll need to check with your tax adviser in that state for full details.
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