BS: Capital Gains Tax enquiry

Subject: BS: Capital Gains Tax enquiry
From: GUEST,Revenue Novice
Date: 20 Apr 07 - 02:06 PM

I understand that if you sell the house you're living in to buy another and move to that, there isn't any liability for Capital Gains Tax, no matter how much you've made in the time between when the 1st house was bought and when it is sold.   Does the same thing hold true for Building Plots; if you sell one which you've had for a few years, in order to buy another, then will there be any liability for CGT on the increase in value, and if so does anyone know how it's calculated?

Subject: RE: BS: Capital Gains Tax enquiry
From: artbrooks
Date: 20 Apr 07 - 02:33 PM

I'm pretty sure that there is a "gotta live in it for x months out of the previous y years" requirement attached to that exclusion, and you obviously didn't (I hope) live on that building plot. However, I'd suggest going directly to the source and calling IRS (1-800-829-1040). I spent about half-an-hour on the phone with them this morning; they were very helpful and explained what seemed to me to be a fairly complicated issue in a way that I could easily grasp.

Subject: RE: BS: Capital Gains Tax enquiry
From: GUEST,pattyClink
Date: 20 Apr 07 - 02:36 PM

What country are we talking about, Britain?

Subject: RE: BS: Capital Gains Tax enquiry
From: Jean(eanjay)
Date: 20 Apr 07 - 02:40 PM

I think artbrooks is right. You may already have looked at the HM Revenue and Customs website. You do need to look at it carefully because there is a sliding scale for second houses so after so many years you only pay on a certain percentage of the amount you sell it for. This could apply to building plots so it is worth looking into. My sister sold a garage that she bought and paid an accountant to work out the capital gains. He saved her thousands of pounds.

Subject: RE: BS: Capital Gains Tax enquiry
From: artbrooks
Date: 20 Apr 07 - 04:10 PM

And thanks for that reminder (insular, moi)...I know nothing about taxes outside the US, and that was the USian tax peoples' phone number I included above.

Subject: RE: BS: Capital Gains Tax enquiry
From: Ebbie
Date: 20 Apr 07 - 07:51 PM

Sounds like the US to me. Wouldn't the British most likely have a different name for it?

Subject: RE: BS: Capital Gains Tax enquiry
From: Bobert
Date: 20 Apr 07 - 08:20 PM

Yes, it's called a "Starker Exchange" or "1031" which allows you to reinvest the capital gain in a "like" property... There are quite afew rules, however, and time limits and you need to place the proceeds with a 1031 agent who actually writes the checks for your new investment...

Now, the property that you are selling has a base (what you paid for it plus any improvements) that you can take back in cash without (in most cases) any tax liability... The IRS assumes that you bought it with after-tax-income so that is yours and you won't have to pay taxes all oever again on the base...

The 1031 has some advantages and some disadvantages... The obvious adbantage is that it deferes the tax... The disadvantage is that you now must reinvest that dough into somwething that is of "like" use and, if you are looking to derive income from siad property, you will have to become a landlord...

Hope this helps...

Bobert

Subject: RE: BS: Capital Gains Tax enquiry
From: JohnInKansas
Date: 20 Apr 07 - 09:00 PM

The "source of all confusion" for US taxpayers is http://www.irs.gov/

At the top of the page, the button for individual payers will take you to http://www.irs.gov/individuals/index.html

There are links at this last page for how to contact your local IRS office, which is where you might go to get forms and "advice."

Also there, you'll find an entry (a little down the page) that asks:

Did you know that there are events in life that may have a significant tax impact?
Many times we experience significant life events that have a tax impact too! This page is designed to help you while explaining to taxpayers the tax impact of these events.

The link there will take you to http://www.irs.gov/individuals/article/0,,id=121557,00.html

This is an "interesting" page, but a little more than half-way down the page you'll find a couple of entries for: First Time Home Owner and Moving? (Curious people might like to look at it just for giggles and grins purposes.)

At the "Moving" entry you'll find Publication 523, Selling Your Home . . . (right click and save target?)

This last link is to a PDF that you can save on your own machine for detailed reading and/or printing. You will be interested in the sections:

Excluding the Gain, page 9
Maximum Exclusion, page 12
Ownership and Use Tests, page 12
Reduced Maximum Exclusion, page 14
More Than One Home Sold During 2-Year Period, page 17

At page 3 of the pdf, you'll find:

Vacant land. The sale of vacant land is not a sale of your main home unless:
• The vacant land is adjacent to land containing your home,
• You owned and used the vacant land as part of your main home,
(… with additional conditions, exceptions, etc.)
(A "vacant lot" is generally considered an "investment property" so you'd go back to link #1 above and click the "Business" button to look for different loopholes.)

The Capital Gains Exclusion is a "once per lifetime" thing for each person, and generally applies only to a "first home" that is your "principal place of residence" for a significant and continuous period of time, intended to "limit the punishment" for old people who must "move down" to a retirement living arrangement.

If you buy a replacement home, you generally do not want to "use up your exclusion", unless the new home is a lot less expensive than the old one. You would use a "Capital Gains Rollover" by applying the "profit" (Capital Gain) from the sale of the original home to the purchase of the new one. But it does get a little complex(?) as there are some very specific conditions that you need to be aware of "when you make the deal" that can significantly "screw you" if you do it wrongly.

If you can read and "understand" the last PDF pamphlet, you should be able to get by with any of the common computer tax programs for the year in which the sale is done. If you don't understand things fairly fully, you should consult carefully with the IRS and/or with a professional advisor. Note that "tax preparation offices" that pop up at tax time are not, IMO, "qualified professional advisors." They're mostly part-time "ordinary citizens with a form to follow," although sometimes during the "off-season" you may be able to get to a permanent employee with some actual knowledge.

What you can and cannot do is strongly dependent on your collecting and preserving appropriate records throughout your entire lifetime of "real property" ownership.

Note: I AM NOT AN ACCOUNTANT OR ADVISOR ON TAX MATTERS.

John

Subject: RE: BS: Capital Gains Tax enquiry
From: kendall
Date: 21 Apr 07 - 07:33 AM

If you are in America, call a lawyer. If you are in the UK, call a solicitor.

Subject: RE: BS: Capital Gains Tax enquiry
From: Jean(eanjay)
Date: 21 Apr 07 - 07:49 AM

If it is in the UK we still call it capital gains tax and a good accountant should be able to advise and help to save a lot of tax. Most people are not aware of what they can use against the tax and there are all sorts of things.

Also, in the UK, if you speak to HM Revenue and Customs they will send you a booklet on it. I have one and I have to say I haven't bothered to read it all. I have a property that I rent out and I think that when I do eventually sell it I will use an accountant and s/he should be able to use the tax taper relief plus some of my costs over the years.

Building plots are of course slightly different but again a good accountant will be able to advise.

Subject: RE: BS: Capital Gains Tax enquiry
From: Captain Ginger
Date: 21 Apr 07 - 08:21 AM

As I understand it, the CGT exemption applies only to your principal privte residence, and the sale has to finance the purchase of another principal private residence.
If you've been living on the plot in a static caravan, and plan to do likewise on the new plot, you may thus be exempt. Certainly if the plot was bought as a speculative venture rather than as a self-build you'll be liable.
However, I'm not an accountant, and would suggest you see one.

Subject: RE: BS: Capital Gains Tax enquiry
From: GUEST,Revenue Novice again
Date: 21 Apr 07 - 11:48 AM

Country is UK. Plot was bought in order to build a house for myself, in line with a "design Brief" drawn up by local authority, but when another house was built nearby which grossly exceeded the requirements of that "Brief" - for a small house - I found that the house I had planned, tho' commended by the Planning Department, would now be too small to receive permission to be built beside the vast pile opposite. So, I can't afford to build a visually acceptable one (and don't want to live in the shadow of a bloody Hotel/Castle). I'll get in touch with Revenue.