DEAR BOB: My son and I have owned our home where we have lived together since June 2006. It has been our plan to sell it in July 2008 and make a nice profit so each of us can take advantage of the $250,000 home-sale tax exemption. However, his employer might send him to Afghanistan for a full year in January 2007. How will that affect our plan to sell in 2008? –Mr. J.M.
DEAR MR. J.M.: As you probably know, Internal Revenue Code 121 provides a principal-residence home-sale tax exemption up to $250,000 if you own and occupy your home at least 24 of the last 60 months before its sale.
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When your son moves out in January 2007 for a long-term job in Afghanistan, he will lose his full eligibility for his $250,000 exemption. Of course, you will retain your full eligibility if you stay in the house as your principal residence for the required time.
If you and he proceed with the plan to sell the house in June 2008, your capital gain up to $250,000 will be tax-free, but your son’s share of the capital gain will be taxable.
However, your son can probably qualify for the “unforeseen circumstances” job transfer exception to IRC 121 because of his overseas job transfer. But that won’t help him much because it will entitle him only to a partial exemption based on the number of qualifying months he actually lived in the home.
If he lives in the home for only six months, plus a possible additional six months when he returns in a year from Afghanistan and again lives in the home, he will be entitled to a partial tax exemption based on his actual months of occupancy. With six months of eligibility, that’s a 25 percent of $250,000 exemption; with 12 months of total eligibility, that’s a 50 percent exemption. For full details, please consult your tax adviser.
WHAT IF A TOP AGENT DEMANDS A LONG LISTING?
DEAR BOB: You always advise to list a home for sale with an agent for 90 days. But in my local market the average time on the market for homes is eight to 12 months. No “top agents” in our market will take less than an eight-month listing. The only agents who will take 90-day listings are the new agents or those who don’t advertise much. What should we do? The first month or two a home is on the market is so important –Jeff V.
DEAR JEFF: I can’t tell from your e-mail where you live, but I am not aware of any large markets where the average days on market for homes is eight months. Somebody is misleading you.
If an experienced residential sales agent can’t get your home sold within 90 days, presuming you price it correctly at market value and it is in good condition, you don’t want to hire that agent. It sounds like you have been talking with some bad agents.
Don’t be fooled by averages. The “days on market” varies widely, depending on neighborhood and price range. Be sure to seriously interview at least three successful agents who sell homes in your vicinity and in your price range.
Phone their recent sellers within the last three months to ask, “Were you in any way unhappy with your agent and would you list another home with the same agent again?”
If the best agent you can find insists on a listing longer than 90 days, be sure that listing includes an unconditional cancellation clause at no charge to you after 90 days (just in case you select a bad agent).
$500,000 TAX BREAK WON’T BE LOST WHEN YOU MOVE TO NEW HOME
DEAR BOB: My husband and I own our house were we have lived for more than 30 years. We put it on the market for sale last May. So far, it hasn’t sold yet. Two years ago we built a new home where we want to live, as we are now retired. If we move into our new home as our primary home, can we still claim the $500,000 exemption ($250,000 for each of us) when our old home sells? Does it matter if we move in 2006 or 2007? –Maxine B.
DEAR MAXINE: Presuming you meet the Internal Revenue Code 121 principal residence ownership and occupancy test for at least 24 of the last 60 months before your old home’s sale, go ahead and move into your new home whenever you wish.
It doesn’t matter whether you move in 2006 or 2007. Just be sure to sell the house within 36 months after moving out (presuming you owned and lived in it the previous 24 months). For full details, please consult your tax adviser.
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