One important note: if you’ve used this home as your primary residence for 2 of the last 5 years you do not have to pay capital gains tax up to $250,000/individual $500,000/married couple. This is a huge advantage that, if applicable, you don’t want to miss. Although you are legally allowed to invest all the profits through an IRA, you probably would not want to as yo will lose the tax advantage of the IRA after you contribute $4000. This is the limit through the end of the year, and in 2008 the limit goes to $5000. If your gain is greater than $4000 ($8000 if you’re married and open 2 IRAs) then you receive no favorable tax treatment on any amount over the limit, and you lose liquidity. I would recommend taking your gains and maximizing your contributions to tax-favored accounts over the next several years so you can receive the maximum tax deduction.
Written by banshee_in_middleville about 5 months ago.
Yes, but you will have to pay taxes on it. Anytime you ‘buy down’ or liquidate a home, you are liable for taxes. Their is one exception called the lifetime tax credit. Once in your life you are allowed to put 100% of the profit into buying a smaller home without tax penalty. You can only do this one time, however. It’s designed to provide retirement housing.
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