One more reason to help out those old folks : Rooftop Views

Rooftop Views

One more reason to help out those old folks

Many of us are caught in a squeeze play these days. We have older parents we need to care for and not enough house to care for them in. But if we sell this home to buy a larger one, there could be serious tax consequences. Believe it or not, the Federal government understands!

Well, the IRS wants to help - and may even provide a tax break for taking an ailing parent into your home. Let's take a closer look. Under normal circumstances, if you sell your home prior to living in the property for two full years, you are normally subject to pay capital gains on the profit made. There is an exclusion that allows for $500,000 of tax free gain if you are married or half that if you are single - but you must have lived in the home for two of the past five years.

However, according to the IRS, if you take an ailing parent into your home and therefore are forced to sell, you can still get a pro rated tax break, even if you have not been in the home for the full two years.

For example, a couple gets married, buys a new home, and one year after they move into the home the wife's mother suffers an illness and has to move in with the couple. Unfortunately, the couple does not have enough room to properly accommodate the mother and is forced to sell the property and purchase a larger home. Being that the couple was pressured to sell the home due to unforeseen circumstances, they can claim a percentage of the $500,000 capital gains exclusion equal to the portion of the two-year period that they lived in the house.

Let's break this down. In this situation the couple lived in the home for one year, and so would be eligible to receive a prorated $250,000 capital gains exclusion (50% of the normal $500,000 capital gains exclusion, due to living in the property 50% of the required two years). So, if the couple purchased the home for $300,000 and sold the home for $400,000 - making only $100,000 in profit, the couple would not have any tax liability at all.

This situation is becoming more common and the life expectancy of our aging population is growing, so being familiar with this tax break could provide substantial savings for you or someone you may know. Feel free to forward this article on to your friends, family members, or colleagues.

views@rooftoprealty.com