Any tax advisors out there? I’m planning on selling my house, buying a larger boat and go cruising for 3 years. If I use the some of the money from the sale ($600K after paying off the $100K mortgage balance) of the house to buy a $250K boat witch would by our primary home can I avoid paying capital gain taxes? Is it allowed? Has anybody done this? Any advice? Thanks in advance. Ozana
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I think you get at least $500k exemption
on gains from sale of residence and if married and spouse in on title then $1M exemption. You can do this over and over so long as you have the residence for two years before the sale. The gain on sale is not sale price, it is the difference between what you paid and what your sold for, without regard to loans. So if you bought your house for $400K and sold for $700K, your gain is $300K and no cap gain tax. But hey, this is free info, so get some confirmation.
on gains from sale of residence and if married and spouse in on title then $1M exemption. You can do this over and over so long as you have the residence for two years before the sale. The gain on sale is not sale price, it is the difference between what you paid and what your sold for, without regard to loans. So if you bought your house for $400K and sold for $700K, your gain is $300K and no cap gain tax. But hey, this is free info, so get some confirmation.
tax returns
I work in individual tax for one of the big 4 accounting firms. If you've lived in the house as your principal residence 2 of the last 5 years each spouse can exclude 250,000 in gain for a total of 500k. Things get much more complicated if you ever used the house as a rental. Going sailing sounds good this time of year. I'll have to settle for 5 minutes of Hunterowners.com Cashing in and living the American dream made for a great movie too. Check out "Lost in America"....too bad Las Vegas was the first stop in the movie.
I work in individual tax for one of the big 4 accounting firms. If you've lived in the house as your principal residence 2 of the last 5 years each spouse can exclude 250,000 in gain for a total of 500k. Things get much more complicated if you ever used the house as a rental. Going sailing sounds good this time of year. I'll have to settle for 5 minutes of Hunterowners.com Cashing in and living the American dream made for a great movie too. Check out "Lost in America"....too bad Las Vegas was the first stop in the movie.
Hey Ken
If our friend finances his new boat, the "mortgage" interest is tax-deductable too, isn't it?
If our friend finances his new boat, the "mortgage" interest is tax-deductable too, isn't it?
Ken
My wife and I saw that movie when it first came out, however long ago. She still bugs me when I remind her that "you don't understand the concept of the nest egg". That just killed me. I too am a CPA taking a break between returns. Good luck with the season.
My wife and I saw that movie when it first came out, however long ago. She still bugs me when I remind her that "you don't understand the concept of the nest egg". That just killed me. I too am a CPA taking a break between returns. Good luck with the season.
better do it quick
I recently read about the current administration moving towards eliminating second home interest deductions. It sounds as though you are talking about primary residence so I am not sure of the implications. have a great time...........
I recently read about the current administration moving towards eliminating second home interest deductions. It sounds as though you are talking about primary residence so I am not sure of the implications. have a great time...........
Advice
By now you know you are tax free on the house gain if you lived there more than two years. How much do you think your boat will be worth in two years after buying it for $250k and adding 50k in upgrades. I suspect the number will be $170-180k. My advice is to keep some of your assets in real estate
By now you know you are tax free on the house gain if you lived there more than two years. How much do you think your boat will be worth in two years after buying it for $250k and adding 50k in upgrades. I suspect the number will be $170-180k. My advice is to keep some of your assets in real estate
Hey Ken, thanks
for clearing up my guess, obviously I could not remember if the 250k or the $500K gets doubled for couples. I bet you get about 50 more questions today, like can I deduct as a casualty loss dropping my outboard in the drink and not recovering it.
for clearing up my guess, obviously I could not remember if the 250k or the $500K gets doubled for couples. I bet you get about 50 more questions today, like can I deduct as a casualty loss dropping my outboard in the drink and not recovering it.
Buy a Fixer Upper-fix it up-cruise-sell tax free!
How about this - Buy a vintage yacht that needs some work - fix it up - do a lot of the work yourself - go sailing and use the yacht as your primary residence - for TWO years - then sell it - recoup your cost - and make money on the venture - tax free! This is such a great web site for overworked CPAs at this time of year!
How about this - Buy a vintage yacht that needs some work - fix it up - do a lot of the work yourself - go sailing and use the yacht as your primary residence - for TWO years - then sell it - recoup your cost - and make money on the venture - tax free! This is such a great web site for overworked CPAs at this time of year!
More CPAs on board
I too am a CPA, and this forum provides great relieve each evening, especially during tax season. My 2 cents worth - the 1989 tax reform act eliminated most consumer interest, but allowed mortgage interest on two homes. Those nice folks in congress like to take care of themselves. Most of them don't have to borrow money to buy a car to get to work (like I do), but most have two homes, one in their home state, and one in or near DC. Having said that, you better believe my boat is my "second home".
I too am a CPA, and this forum provides great relieve each evening, especially during tax season. My 2 cents worth - the 1989 tax reform act eliminated most consumer interest, but allowed mortgage interest on two homes. Those nice folks in congress like to take care of themselves. Most of them don't have to borrow money to buy a car to get to work (like I do), but most have two homes, one in their home state, and one in or near DC. Having said that, you better believe my boat is my "second home".
So Kevin, does...
that mean the boat qualifies as my primary residence? Thanks again for your answers. Ozana
that mean the boat qualifies as my primary residence? Thanks again for your answers. Ozana
Principal residence is a GRAY area - GOFORIT?!
I would interpret living on your boat exclisively - the boat would be your principal residence - and would afford you a tax shelter from capital gains - of course you must sell it for more than you purchased it for -
I would interpret living on your boat exclisively - the boat would be your principal residence - and would afford you a tax shelter from capital gains - of course you must sell it for more than you purchased it for -
And remember...
The "2 years out of the last five" time frame doesn't have to be consecutive. You could live on the boat each year for 6 months, and in a landbased home for 6 months, 50% of the time in each. Over the 5 year time frame, either or both could have been your "principal residence" for 2 years, as long it was used the aggregate of 730 days. But as said, "all the facts and circumstances" come into play as to whether it is "principal". I wouldn't want to try to make that argument if my boat was berthed at my dock behind my landbased house, for example. But if I lived in Minnesota 6 mos, and the Keys 6 mos each year... Plus you can only use the exclusion once every 2 years, so you couldn't use it on selling, within 2 years of each other, both the house and boat (if they both qualify).
The "2 years out of the last five" time frame doesn't have to be consecutive. You could live on the boat each year for 6 months, and in a landbased home for 6 months, 50% of the time in each. Over the 5 year time frame, either or both could have been your "principal residence" for 2 years, as long it was used the aggregate of 730 days. But as said, "all the facts and circumstances" come into play as to whether it is "principal". I wouldn't want to try to make that argument if my boat was berthed at my dock behind my landbased house, for example. But if I lived in Minnesota 6 mos, and the Keys 6 mos each year... Plus you can only use the exclusion once every 2 years, so you couldn't use it on selling, within 2 years of each other, both the house and boat (if they both qualify).
HOME SALE
I would seriously consider selling my home to get into a boat. Please read as much as you can about couples who have done this and have not been happy. Don't forget that if the real estate market continues to appreciate,(boats depreciate) you will not be able to get back into the same size home. I would seriously consider obtaing a 2nd mortgage and renting your home, and possibly buying a smaller boat.
I would seriously consider selling my home to get into a boat. Please read as much as you can about couples who have done this and have not been happy. Don't forget that if the real estate market continues to appreciate,(boats depreciate) you will not be able to get back into the same size home. I would seriously consider obtaing a 2nd mortgage and renting your home, and possibly buying a smaller boat.
Dave is correct [of coarse}
but I will hop onboard the dream for today, hey, it's Sunday! Are there any other tax deductions I should have taken? How about maintaince if you sail with a client? Jack
but I will hop onboard the dream for today, hey, it's Sunday! Are there any other tax deductions I should have taken? How about maintaince if you sail with a client? Jack
Tax Info
My understanding is that the critical piece of info is what was the profit on the primary residence. If less than 500k, you should have no problem. At least that is my take (unprofessional) on the regs.
My understanding is that the critical piece of info is what was the profit on the primary residence. If less than 500k, you should have no problem. At least that is my take (unprofessional) on the regs.
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