Ownership test on sale of principle residence and capital gains question


M

Mail Ias

I have a question about the Ownership and Use Tests
described in Publication 523 "Selling Your Home".

In August of 1998 my parents helped me purchase my first
home. The home was purchased from another individual. My
parents where the ones who technically purchased the home –
their names were on the deed and mortgage, etc. At the same
time we wrote a contract for deed in which I would make the
mortgage payments and live in the home until I was able to
get my own mortgage. They never lived in the home. Only
me.

In September 2001 I got married and my wife moved into the
home. In May of 2002 we "refinanced" and got the mortgage
and deed in our name. On the county records it looks like
any other sale.

We're looking to sell and move up to a nicer home, but are
concerned we may be charged capital gains if we sell before
May 2004. I've gotten different opinions from different
accountants. (My normal accountant is on vaction right now,
and I recall him telling me that I met the ownerhip test.
Other accountants have claimed I'd owe captial gains because
I didn't meet the ownership test).

So, using the "owned the home for at least two years and
lived in it for two of the last five years" exemption – does
this meet the ownership test? In other words is there any
case law on the books now about what exactly defines
ownership?
 
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D

D. Stussy

Mail said:
I have a question about the Ownership and Use Tests
described in Publication 523 "Selling Your Home".

In August of 1998 my parents helped me purchase my first
home. The home was purchased from another individual. My
parents where the ones who technically purchased the home =96
their names were on the deed and mortgage, etc. At the same
time we wrote a contract for deed in which I would make the
mortgage payments and live in the home until I was able to
get my own mortgage. They never lived in the home. Only
me.

In September 2001 I got married and my wife moved into the
home. In May of 2002 we "refinanced" and got the mortgage
and deed in our name. On the county records it looks like
any other sale.

We're looking to sell and move up to a nicer home, but are
concerned we may be charged capital gains if we sell before
May 2004. I've gotten different opinions from different
accountants. (My normal accountant is on vaction right now,
and I recall him telling me that I met the ownerhip test.
Other accountants have claimed I'd owe captial gains because
I didn't meet the ownership test).

So, using the "owned the home for at least two years and
lived in it for two of the last five years" exemption =96 does
this meet the ownership test? In other words is there any
case law on the books now about what exactly defines
ownership?
For real estate, the strictest defintion is title. You have
held title only since May 2002. Under looser definitions,
you may have been the effective owner, but why not hold
until (or close escrow on) May 2004 so as to avoid the whole
problem? If you don't have a buyer right now, you're only
looking at a 9 month delay - where 2 months of that will
typically be the escrow period anyway.
 
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D

Drewremedy

"At the same time we wrote a contract for deed"

As a matter of state law, check your state, this may be
sufficient to start the ownership clock under some facit of
equitable title .

I suspect the question has come up already and there are
answers within tax attorney or PA or EA circles.

Either get a reliable tax answer OR wait out the deadline as
to ownership if the $$ gain count. PS you can structure a
sale to deliver ownership later.
 

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