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I am selling my home in California. I know that $250,000 is mine to keep, however, about $176,000 I believe is subject to capital gains tax? Can I invest that money in property in a different state to avoid paying capital gains taxes?


Expert Michael Lim's Answer:

 No.  The ability to "rollover" gain on the sale of a house and defer the payment of taxes as long as the proceeds were reinvested in a new home of at least equal value was phased out as part of the Taxpayer Relief Act of 1997 (effective May 6, 2007).


It does not matter if the money is invested in a property in a different state.


The new rules regarding exclusion of home sale gain state that, f your home has been your primary residence for two years of the last five year period ending on the date of the sale or exchange, you may be able to exclude $250,000 of capital gains (the increase in value over and above your purchase price, plus the cost of any improvements).


This amount is doubled to $500,000, in the case of a husband and wife who make a joint return for the taxable year.



Michael Lim, CPA


16 yrs experience

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