Legal Question in Real Estate Law in California

Re: Capitol Gains

There is captial gain, no matter how long he lived in it. His basis is what he paid for it, any closing costs paid when he bought it (unless they were deductible at the time, such as points), closing costs when he sells (commissions, etc.) any capital improvements (not repairs), and the costs preparing the property for sale. Once the basis is established, you subtract that from the final selling price. Then you deduct the $250K exemption, and the remainder is taxable gain. Depending on his situation, there are some things he can do to avoid that gain, but they are somewhat complex, and may not be worth the expense.

Re: Capitol Gains

If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). This means that during the 5-year period ending on the date of the sale, you must have:

Owned the home for at least 2 years (the ownership test), and

Lived in the home as your main home for at least 2 years (the use test).

If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. The maximum amount you can exclude will be reduced. If you are required or choose to report a gain, it is reported on Form 1040, Schedule D (PDF), Capital Gains and Losses.

If you were on qualified extended duty in the U.S. Armed Services or the Foreign Service you may suspend the five-year test period for up to 10 years. You are on qualified extended duty when:

At a duty station that is at least 50 miles from the residence sold, or

When residing under orders in government housing, for more than 90 days or for an indefinite period.

This change applies to home sales after May 6, 1997. You may use this provision for only one property at a time and one sale every two years.