Video instructions and help with filling out and completing Fill Form 4797 Info

Instructions and Help about Fill Form 4797 Info

Music good morning everyone and welcome to today's class called sale of home we're going to be taking a close look at the important rules that we should be aware of when we're dealing with the sale of a personal residence and we're just going to quickly flash past the course objectives and the table of contents onto page three of the manual where we're going to be looking at the introduction and to start our introduction your home is considered to be a personal youth capital asset and the following tax rules normally apply to the sale of personal use capital assets firstly if you have a loss on the sale of a personal youth capital asset that loss is not normally reportable and any loss that you might have is not deductible conversely if you sell a personal use asset for a profit that is at a gain then the gain on the sale of that personal use asset is taxable so the iris doesn't give but it sure wants to take in that scenario now when it comes to the sale of your main home though special rules may allow you to exclude a portion or all of your gain from the sale making the home sale of the home a tax-free event and today's class is going to describe the rules surrounding the sale of home and how to determine what portion of the game that you have from the sale can be received tax-free just briefly we're going to look at some rules that were in place prior to May 7 1997 that was a rather important day in the history of sale of home because on that day new rules took place and prior to that day it there was no such thing as an exclusion on the sale of your home the rules back then we're very very different and because the rules were so different back then there are some people who are still confused they actually think they remember rules from the past and they intermingle them with rules of the present and so we're just going to briefly discuss how things used to be before we get into how they are today so there is room for confusion for some people when it comes to the sale of home and that's because the rules for sale of home changed completely beginning in 1997 many home owners currently own home that they bought under rules that existed in 1997 and earlier years did you file Form 21 19 to postpone gain on the sale of your home before May 7 1997 because prior to May 7 1997 gain on the sale of your home was fully taxable however if you bought a replacement home that was equal to or greater in value than your old home then you would have filed form 21 19 to postpone your gain post the limit of gain on the sale of your old home effectively reduced your cost basis in your new home and this is relevant today if you are trying to calculate the gain on the sale of a home for which you previously filed form 21 19 they're also used to be something called the once-in-a-lifetime exclusion of a hundred and twenty five thousand dollars this particular exclusion was available only once in a lifetime and it was available to taxpayers who had reached age 55 or older this particular rule has been rescinded but while it was around I used to have commonly run across people who would talk about the fact that they were waiting to turn age 55 so that they could sell their house and of course that's no longer necessary because we have a much better exclusion in play today and that exclusion came into law effective May 6th were actually May 7 1997 so if you sold your home after May 7 1997 these rules apply but if you have a home that you owned prior to May 7 1997 and then you sold it say in 2014 you do need to account for the fact that you may have a gain that you deferred when you purchased that home that you just sold for example back in 1992 sarah buys the house for $60,000 and she lives in that house for two and a half years and sells at four hundred thousand so she has a forty thousand dollar profit and none of the rules of the day she would have had to pay tax on that profit unless she did something and that something was purchased another home within two years of equal or greater value than the house that she sold it happens to be the case that she pretty much simultaneously purchased a new home costing a hundred and fifty thousand dollars and so she was able to defer her gain of $40,000 on the sale of that home old home when she purchased the new home costing one hundred and fifty thousand but interestingly because she deferred her gain on the sale of that old home that forty thousand dollars of deferred gain subtracts from her cost basis on the new home so instead of having a cost of 150 thousand she has a cost of one hundred and ten thousand and let's just suppose she continues to live in that home for 20 years and then finally turns around and sells it she's gonna have to remember all the way back to that pre 1997 era when she purchased that home and had deferred gain in it when she is looking at how much gain she may have in the modern day so let's take a look at the modern day now in the modern day we are able to exclude the gain on the sale of a home under section 121 if the rules are met you qualify to exclude the game on the sale of your home