Birth of twins gives couple real estate tax break

DEAR BOB: My wife and I bought our first home in March 2004.We sold it in January 2005 due to the birth of our wonderful twins. When wesold it, we used our profit to buy a larger home with double the square footageand almost double the price. Can we apply for an exception on the sale of ourhome pertaining to Internal Revenue Code 121 due to the multiple births althoughwe don’t meet the 24-out-of-60-month occupancy test? –Kyle G.

DEAR KYLE: Congratulations to you and your wife on the birthof twins. Uncle Sam is so thrilled he will reward you with a partial IRC 121principal residence sale tax exemption based on the number of months ofownership and occupancy.

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The Internal Revenue Service calls your situation anofficially approved “unforeseen circumstance,” entitling you to apartial $500,000 home-sale tax exemption.

Because you occupied your principal residence for 10 months,you qualify for an exemption of 10/24ths of the $500,000 exemption available toa married couple filing a joint tax return. That should be enough to shelterall your capital gains from taxation.

The fact you used the sale proceeds to buy a larger home,however, is irrelevant. All that matters is you had an “unforeseencircumstance” entitling you to a partial IRC 121 tax exemption. For moredetails, please consult your tax adviser.


DEAR BOB: I am paying private mortgage insurance (PMI)premiums on my rental income property. I was told I can deduct my PMI premiumson my tax returns. If this is true, where should I put this deduction on my taxreturns? –Claude R.

DEAR CLAUDE: You are correct. The PMI fee is an”ordinary and necessary” operating expense for your rental property.However, PMI is not tax deductible for personal residence owners.

There is no right or wrong place to list on your Schedule Ethe PMI fees you paid. The blank space for other expenses seems the ideal placeto claim this significant tax deduction. For more details, please consult yourtax adviser.

The new Robert Bruss special report, “Pros and Cons ofFast and Slow House Flipping for Big Profits,” is now available for $5from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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