Home sale exclusion rules: CPA advice welcome

I am also looking for further light on this issue. I have lived in my current home for 3 years and was looking to sell very soon. It appears, however, that under the Senate bill, I would have to continue to own it and live in it (I assume as a primary residence) for another 2 years before I sell in order to qualify for the favorable capital gains exclusion.

So, if I sell now under the existing rules, assuming a net sales price of $2,000,000 and a tax basis of $1,000,000, my gain is $1,000,000, my taxable gain (married, owned/occupied for last 2 years) is $500,000 and my tax @20% is $100,000.

However, if I sell now under the new rules (all other assumptions being the same), and do not qualify for the $500,000 exclusion, my taxable gain is $1,000,000 and my tax is $200,000.

So, I appear to have two choices. Sell now and absorb the additional $100,000 tax, or live 2 more years in the home and hope that its market value will not decline by more than 5% or $100,000.

By the way, currently I believe that there is an exception to the 2 year rule for what the IRS calls “unforeseen circumstances,” such as job loss, divorce, or family medical emergency. Not sure what the new rules will provide.

Anyone have any thoughts? Any workarounds?

Both of you making goood points. I talked to my CPA/ attorney and his response was that New rules will apply only to the new purchased homes. So if rules become the law in 2018, every newly purchased home will be effected by 5 years rule. Everything bought before 2018, old rules would apply.

$1,000,000 to $2,200,000 in 3 years - you made a pretty good purchase.

Hope that is correct, Friend and new rules will apply only to new purchases rather than new sales.

Not that good a purchase, 30. I was using round figures to show a simpler analysis. I hope to make about $650k gross and $500k net after reno costs before tax. Would like to continue investing in apts. but it looks like between the tax man and the market, may not make sense anymore.

Thanks Friend. I will be very relieved if you are correct.

I just read that "under the house bill, you begin to lose the gains exemption if adjusted gross income (in a look-back period) exceeded $500,000 if married or $250,000 if single." This provision is reportedly not in the Senate version.

https://www.forbes.com/sites/samanthasharf/2017/11/03/what-the-republican-tax-plan-means-for-the-value-of-your-home/#541275763c4d

Also, a change to this exclusion created by the Housing Assistance Tax Act 2008 related to adjusting the exclusion for "certain periods of nonqualified use” applied to property sold after December 31, 2008. No mention of when property is purchased.

https://farr.com/law-change-alert-irs-limits-income-tax-exclusion-on-capital-gains-from-homestead-property-sale/

I confess I don't understand how agi would work in this context. Does this mean that if your home sale yielded a 300 -400k net profit, you would be bumped out of the exclusion, even if, for instance your other income for that year had been low?

From everything I can find, we will be taxed according to the new law, not the old one. That said, it does look as if the pro-rated exclusion remains available for "unforeseen circumstances." I am still hoping others will weigh in to shed more light.

According to this site, the house wants to remove the "unforeseen circumstances" clause. Meanwhile both the house and the senate propose cutting the deduction in half:
https://smartgrowthamerica.org/app/uploads/2017/12/Sectionby-Section-for-House-Senate-Final-Tax-Reform.pdf

David, does this article describe the final Senate bill that was passed? It reads as if it was written before passage.

David, does this article describe the final Senate bill that was passed? It reads as if it was written before passage.

I'm not a hundred percent sure on this, but it looks like it comes from a November 16th article.

I hope November 16th is correct. I found it under a 'past week' search. From what I can see, it's linked within a blog dated Dec 5th: https://smartgrowthamerica.org/locus-urges-tax-reform-house-conferees-protect-community-development-affordable-housing-tax-incentives/

I forgot to mention that I read part of the text of the bill. It says that the new rules will apply to "all sales and exchanges" after Dec 31, 2017.
I didn't see anything about a 50% reduction in the exclusion amount. I'm hoping the blogger linked an old document. Or is it possible that it was an account from the reconciliation dialogue?

I wouldn't assume anything with this tax bill written by a bunch of desperate liars. Who knows what last minute changes they will put in.

Hey guys, sure you’ve seen this already https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3084187 ... Would love to hear your thoughts on this. Especially interesting, being a corporate (lower rate) plus step up in basis?

Also sure you've seen this as a primer on NYC real estate related taxes for buying, selling, and just being an owner: https://www.hauseit.com/nyc-real-estate-taxes/

Prohibitively expensive already!

P.S. Also what is this https://www.taxreformandtransition.com/2017/11/senate-tax-proposal-establishes-gilti-patent-box/ ? A potentially 12.5% corp tax rate for export income??

My accountant has suggested holding off on doing anything until January when a new law is actually inked. Don't do anything drastic just yet.

The full text of the bill is here: http://www.washingtonexaminer.com/read-the-republican-tax-bill-for-yourself-full-text-of-the-tax-cuts-and-jobs-act/article/2643686

I've scrolled through it, albeit rather quickly, and have yet to find the relevant sections.

@ David2016 and @ximon you will be grandfathered and this bill won't apply to you. You will still be under the "2 of 5" rule

Going forward there is no doubt this will hit the real estate sector and brokers harshly because people will keep their home longer, there will be less turnover and less incentive to sell a home after 2 years to realize capital gains. I know people who jumped from home to home every 2 years to build tax-free wealth. This will stop.

Nicole @ NestApple

Thank you for your response.
I'm reading the bill from pg 631:
It says that both House and Senate versions extend the time period to 5 out of 8 years, yet both allow for "unforeseen circumstances." The difference between them relates to AGI in the House version.
The effective date is Dec 31, 2017. In other words someone like me, who has not yet listed his residence, will be subjected to the new rules.
The text of the reconciled bill includes both house and senate versions, while stating "no provision" in the reconciliation section beneath it. I find this "no provision" quite mysterious and would appreciate if anyone can shed further light.
If this is somehow where being 'grandfathered in' pertains, I would definitely be interested to hear how that works.

What I a now reading is that "no provision" means that the change in both the House and Senate versions have been stricken, and the 2 out of 5 year rule remains.