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What are the capital gains exemptions for house sales?

February 9, 2005


Date:  Tue, 25 Jan 2005
From:  Bo

My aunt bought a house in December, 1999. She has let my wife and me live there from that time to the present without charging us rent. If she wants to sell the house and buy another one, will she be charged tax on capital gains? What is the rate?

Answer

Date:  Mon, 31 Jan 2005

Hello Bo,

Since your aunt never charged you rent, it's questionable whether she can make a tax-deferred exchange for the residence. Since she never lived there, it won't qualify for the exclusion for the sale of a principal residence.

The maximum federal income tax rate that applies to long-term capital gains is 15%. State taxes can also apply. In California, net long-term capital gains are taxed at the same rate as other income. If she lives in a different state from the one where the residence is located, she may be required to file income tax returns in both states. Your aunt should consult a tax advisor about her situation.

Good luck!
Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.

What are the capital gains exemptions for house sales?

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