Video instructions and help with filling out and completing Where Form 4797 Exclusion

Instructions and Help about Where Form 4797 Exclusion

Hi guys this is Toby Mathis from Anderson business advisors and today we're gonna talk about nothing but selling your house and when I say your house I mean something that you've lived in in the last two years as a personal residence works in the last five years but you had two of the five years as your personal residence so we're really looking at is something that you have lived in as your primary personal residence not a vacation house or anything like that something that you actually lived in as your primary residence and we'll go ahead and go over the tests because there are some exceptions but we're just going to start from the basis that you need to have lived in it 24 of the previous 60 months before you've sold it and then we'll go over what all the exceptions are excetera off of that so first thing to know all assets that you own whether it's a car your house anything like that is considered a capital asset and when you sell it if it's gone up in value or if you wrote it up it completely and it's gone up in value you're gonna have some amount of taxable gain so if you bought your house and we'll talk about how to do the calculations but if you bought a house and it's gone up in value you're gonna have some sort of capital gain if you lose value if you used it for personal use you don't get to write it off that's why if you buy a house and it tanks you sell it you don't get any benefit if you buy a rental property and it tanks you get to take the benefit if you buy a house convert it to a rental property then it tanks you get to write it off if you buy a house living in his private residence and tanks and then you convert it to a rental then you sell it not the same thing there's all little variations but I hope you guys get to gist capital gains is what we're talking about when you sell an asset for homes there's an exclusion to the capital gains it's found in Internal Revenue Code 1:21 that's why they call it a 1:21 exclusion and this is the part of the code that says if you've lived and you meet a certain test if you own the home and you lived in it as your primary personal residence for two of the preceding five years you have a capital gains exclusion as an individual up to $250,000 as a married couple filing jointly up to $500,000 so in English I buy a house for a hundred thousand my spouse and own it for ten years lived in it always as my personal residence and I sell it for six hundred thousand I'm gonna pay zero capital gains because when you look at the look-back period this 5-year period did you live in it two of the last two years of the last five yes was it your primary residence during that period yes great then we have this experience of non-qualified use in other words did you rent it out in any period of time No then we don't have to worry about it great hunter percent exclusion that one that $500,000 of gain is excluded you don't have to report the game you pay zero capital gains tax that's why it's so powerful all right so first off I'm gonna contrast this this 121 exclusion which is for the house that you lived in keep in mind primary residence two of the last five years it's not the last two years it's two of the last five so in theory I could have lived in it for a number of years and then rented it for five years and I would still get my 121 exclusion its capital gains exclusion if I rented it for three years there's a good chance that I would have depreciation that is not part of the equation I do not get to avoid depreciation for you guys that had home offices that way you did the home office deduction as a sole proprietor that's also considered depreciation you also get to recapture that so there's some little points in here that that can make it complicated which is why it's so important that you listen to these types of video because there's lots of little pieces to it and you're gonna see the exceptions and the the variations can get maddening at but what we're looking at is in the last five years that I owned it did I meet the use test in fact I actually use a step by step so I say step number one will be like hey what do I get like what will automatically disqualify me like what things would make it to where I do not get to use one twenty one number one if your next pet you don't get to in fact what do they say you're subject to expatriation tax you're done you don't get to take the 121 exclusion how about a 1031 exchange - property now I've lived in it but I have not lived in it for at least five years or let's see yeah that you acquired the property in exchange - in the last five years you're done you do not get to take this it's longer than that you can actually still qualify and then if you don't meet the use the the use and ownership test then you do not get to take the 121 exclusion now to that last test the use and ownership there are some exclusions for partial use or there are some periods of time or where we can actually defer which is when you are active military Peace Corps things like that and you