Conference nyoss1::market_investing

    
    Looks reasonable. Capital losses can be used to offset capital gains 
    up to any amount. Capital losses in excess of capital gains may only
    be deducted $3000 per year. 
    
    So this is probably a good strategy for you. DEC losses which you 
    would otherwise have to postpone can be used to offset your capital 
    gains, which you would otherwise have to pay probably about 6-8K 
    in taxes on. 
    

    over the course of that 10 years, you probably spent a non-trivial
    amount of $ doing things to the property that improved its value... any
    and all of those things that are "not repairs", but did add to the
    value of the home in a significant way all count as additional "basis"
    and so do not count as profit.
    
    These things range from obvious, major work like adding a room to
    obscure things like planting a tree, building a fence or a flowerbed,
    storm windows, shelves/storage units (that stayed in the home when you
    sold it), etc.
    
    So, you're really dealing with:
    $148k - $5k - $119k - ($?k of improvements) = $taxable.
    
    SteveSov

Of course, you will have to watch if you are still in ESPP.  Your sale of
stock to take a loss if you are also buying stock may represent a wash sale.
I'm not sure how this affects you if you are dictating exactly WHICH shares
you are selling.  But if it is a wash sale, you can't deduct the loss.

Check it out... there is also a note on wash sales...

Murph

From .0:
 
>    1) I've just sold my principle residence for $148k after purchasing it
>    for $90k 10 years ago. I incurred $5k of expenses to fix it up for sale.
>    So. A gain on sale of residence of $53k.
>    
>    2) I buy a lower price house for $119k. (Actually a nicer house but out
>    a bit in the country).
>    
>    So my capital gain = $148k - $5k - $119k = $24k (taxable as income).
    

	The way I understand capital gains, your taxable gain is $53k (not $24k
as you stated).  Your basis in the house just sold is $95k ($90k purchase
price + $5k improvements).  Since you sold the house for $148k, your gain is
$53k ($148k - $95k) as stated in your item 1).  The price of the new house is
irrelevant regarding the gain you received from selling the original house.

	I assume the postponement of capital gains tax is unavailable to those
who buy house B for less than they sold house A.


	Nick

    RE .4
    
    I thought the basis for residences was the NEW home?
    
    Randy
    

    
    	Re: .4 and .5
    
    	I _think_ (but don't fill out your 1040 based on this) that if the
    new house costs less than the old house does, then all the gains from
    the old house are taxed immediately.  Only if the new house costs more
    than the old house sold for does it factor into the calculations.
    
    							-craig

    I agree with .6 . You can defer the gain if you buy a new house worth
    MORE within two years of sale. However, a less expensive house means
    that you realize the gain immediately. So entire gain becomes taxable-
    there is no deferral.

    And: any previous deferred gains (from past transactions) also come
    due...
    
    L.

    
    Oh-Oh....
    
    Well, I guess I need to make a few more major improvements to the house
    quickly to increase the basis. 
    
    Thanks for the input, luckily I've time to correct things (1+ years), I
    thought I would handle the tax situation in 1992, but I may postpone it
    all until I get my ducks lined up.
    
    Randy
    
    
    Randy

    
    	Re: .9
    
    >Oh-Oh....
    >
    >Well, I guess I need to make a few more major improvements to the house
    >quickly to increase the basis.
    
    	Why???  For any improvement that you might make right now, there is
    one of two results that can happen (I'll paint the black and white
    ends of the spectrum; an improvement that falls into the gray-zone is
    just as bad):
    
    	1) The improvement costs, lets say, $10,000 and improves the house
    enough that you get $10,000 more when it is sold.  Net result to your
    taxes?  No change, since your basis is $10,000 higher, but so is the
    selling price.
    
    	2) Keeping the same $10,000 improvement, lets say it is to
    something that doesn't increase the selling price of the house at all.
    Congratulations, you just spent $10,000 to save only $2,800 (plus/minus
    whatever specific bracket you're in) on taxes.  That's not exactly a
    win for you.  (My view is that minimizing how much I give to the IRS
    isn't important -- how much I get to keep after _all_ my required bills
    (including the tax bill) is paid is the important number.  I'd happily
    give the IRS $1,000 more if it meant there was $3,000 more in my
    pocket after all was said and done.)
    
    							-craig

    RE -.1
    
    Yes, I agree I'd rather have $3000 and have to give 30% of it to IRS,
    than have nothing at all!
    
    I didn't really post the complete picture here, I actually have a 9
    acre tract of land where the bank took 3 acres as collateral and filed
    a new land survey on the partial tract showing them as having a lien.
    
    I paniced a bit when that happened thinking that that lowered the basis
    for the new house from what I had intended, which was a wash with the
    old house. However, I'm led to believe that IRS doesn't care at all
    about what the bank did to me. I own 9 acres which was a complete tract
    until the bank put a lien on 3 acres of it to secure a loan, but for
    purposes of taxes, I can treat the entire parcel of 9 acres as one
    property, so I should be able to say I've purchased a new home at a
    price which exceeds (slightly) the selling price - expenses of the old
    residence.
    
    I still may sell the stock however, and take that loss.
    
    
    Randy
    

OK...here's what happens to the sale of residence on the 2119.  It's rather
messy, but I'll try to distill it and leave it generic enough that others can
use it, too.

(I apologize for the length of this mess - but I didn't make up the rules, I
 just try to follow them. 




First, lets figure a few things out:

Sale price of old home is 148k
Expenses of sale...this includes things like realtor's fees (if paid by seller)
 and other costs shown on your closing statement (paid by seller) for stuff
 like appraisals, surveys, inspections, etc, etc, etc.  Don't count things that
 have been deducted as moving expenses on the 3903.

Take the sale price and subtract the expenses of sale to get "AMOUNT_REALIZED".


Purchase cost of old home was 90k.
Add expenses of purchase, as above, for things paid by you, the buyer. (But
    don't count moving expenses...)
Add costs of any improvements.
If you had any casualty losses, easements, of other stuff while you owned
    the property, you have to account for them too...
If you had any deferred gain from a previous sale of residence, account for it.

This gives you the "ADJUSTED_BASIS_of_OLD_HOME"


Purchase contract on new home was 119k.
Add expenses of purchase, as above.  Again, don't count things taken as moving
    expenses on the 3903.
Add "significant loophole" items if applicable, see below.

This gives you the "PURCHASE_COST_of_NEW_HOME"

"FIXING_UP_EXPENSES" have to be *actually done* and *paid for* within certain
time limits, but anything done within few months of the sale and paid for 
promptly will probably qualify...





Now that we have the basics, we can do the calculations.

GAIN_REALIZED = AMOUNT_REALIZED - ADJUSTED_BASIS_of_OLD_HOME

ADJUSTED_SALES_PRICE = AMOUNT_REALIZED - FIXING_UP_EXPENSES

This year, tax will be paid on the smaller of GAIN_REALIZED or
the "excess" of (ADJUSTED_SALES_PRICE - PURCHASE_COST_of_NEW_HOME)

GAIN_DEFERRED = GAIN_REALIZED - (taxable amount reported this year)

New basis of purchased property:
PURCHASE_COST_of_NEW_HOME - GAIN_DEFERRED




So, ignoring the numbers we don't know, for this case:

AMOUNT_REALIZED = 148k
ADJUSTED_BASIS_of_OLD_HOME = 90k
PURCHASE_COST_of_NEW_HOME = 119k
FIXING_UP_EXPENSES = 5k

GAIN_REALIZED = AMOUNT_REALIZED - ADJUSTED_BASIS_of_OLD_HOME
          58k = 148k - 90k
ADJUSTED_SALES_PRICE = AMOUNT_REALIZED - FIXING_UP_EXPENSES
                143k = 148k = 5k

Tax this year to be paid on th elesser of 58k or
the "excess" of (ADJUSTED_SALES_PRICE - PURCHASE_COST_of_NEW_HOME)
                                 143k - 119k = 24k
...the lesser of these is 24k.
GAIN_DEFERRED = GAIN_REALIZED - (taxable amount reported this year)
          34k = 58k - 24k

New basis of purchased property:
PURCHASE_COST_of_NEW_HOME - GAIN_DEFERRED
              119k - 34k = 85k

So, 24k needs to be reported as income, and 34k is deferred into the new
property, giving it a basis of 85k to start off with.


SteveSov




...oh...did I mention a loophole?

Any additions to the new property that are completed within the "replacement
period" (two years before or after the sale date of the old home) can be
counted in with the purchase costs of the new home.  "Fixing up" of the new
residence doesn't count here, but "improvements" do.

    Thanks Steve -.1
    
    So those who were saying if the cost of a new house is less than the
    selling price of old house - improvements & selling costs, then one has
    to treat all of the gains as immediate income were wrong!
    
    My origonal formula was correct although somewhat oversimplified.
    
    Randy