Question:
This is the first home my husband and I have owned, it's a condominium that was purchased 10 months ago. We just experienced a flood due to an improperly installed valve. We are selling the condo back to the builders (as it was brand new when purchased and this was VERY unforseen). We will be purchasing a new home and rolling all equity into it (there will be about $20,000 in equity with the buy-back due to current market value). Will we have to pay capital gains on the $20,000? Will this fall under "Unforseen Circumstances" and qualify for a lower exclusion? Or is there something else? THANKS!
Answers:
You say $20K in equity - is that really gain (is the builder paying you more than you originally paid) or is some or all of that due to your down payment? Equity amount doesn't matter, it's gain that would be taxable.
Rolling the equity into your new home has nothing to do with whether it's taxable. Under older rules it did, but that went out many years back.
I'd be surprised if the IRS considered your situation to qualify you for "unforseen circumstances" forcing you to sell, therefore getting the reduced exclusion, unless the property couldn't be repaired to be habitable again. If it can be fixed, but the builder is just buying it back because you are (justifiably) very unhappy with his work, that wouldn't likely count.
Good luck.
This article contents is post by this website user, HiAnswer.com doesn't promise its accuracy.
More Questions & Answers...