Dear Ask George: I will be closing on the sale of my house in November and will realize a profit of $50,000. What, if any, is the difference and affect on my income tax refund should I buy a new house before or after the end of the year? – IRS Inquirer
Dear IRS Inquirer: You should consult a tax professional such as a tax attorney, CPA, or someone else who has been trained in the complexities of the tax code. Such a person can take into consideration all of your taxable income and deductible expenses items and can provide you with a complete answer to your question.
From my point of view as a real estate broker, however, if you convey your property this year you will have to report it this year. The capital gain you report on this year's tax return is taxable. But, you may also exclude $250,000 ($500,000 if you are married and file a joint return) of it if you owned your home and used it as your principal residence for two out of the previous five years before you sell it.
Before 1997 when the Taxpayer Relief Act of 1997 became law, one could defer the capital gains tax by purchasing another principal residence within two years before or after selling the existing home, for a purchase price that was equal to or greater than the sales price of the home you sold. That part of the Internal Revenue Code was repealed, and replaced by the current Capital Gains exclusion upon sale of your principal residence.
Again, consult a tax professional for a complete picture of your taxes. You may also wish to obtain a free publication from the IRS, Publication 523 "Selling Your Home." Another article that may be potentially helpful appears in the Washington Post, and is written by Washington lawyer and Real Estate-Realtor Times columnist Benny L. Kass.
Dear Ask George: I have a lien on my home from the IRS but I have worked out a payment schedule with them. I think I have enough equity in my home to pay off the IRS lien plus have some left over for some needed improvements. Can I refinance my home or do I need to involve the IRS? - Baffled
Dear Baffled: "Yes," as to involving the IRS. Do you have a Taxpayer Advocate? If not, the easiest way to find the Taxpayer Advocate Service in your area is to call toll free, 1-877-777-4778.
The IRS states the following about the Taxpayer Advocate Service:
All Taxpayer Advocates are trained to deal with all categories of issues. Thus, all taxpayers in a specific locality will go to the same advocate office, whether the taxpayer is a small business, a large corporation, a wage earner or a government entity.
The Taxpayer Advocate Service (TAS) was created as part of the Internal Revenue Service Restructuring and Reform Act of 1998. The TAS is an independent office within the IRS and helps taxpayers in dealing with the IRS in two types of cases:
- A taxpayer is suffering or about to suffer a significant hardship
- The taxpayer, while not experiencing a hardship, would benefit from the involvement of TAS.
In addition, whenever the TAS discovers procedural problems within the IRS, or the tax code that inhibits its ability to help a taxpayer, TAS will propose administrative solutions or legislative changes, as appropriate.
Dear Ask George: Regarding the payment of referral fees to unlicensed persons: Everywhere isn't Texas. In Colorado, it is legal to pay a fee to an individual who provides the name of a buyer or seller to a licensed broker, as long as that person does no more than that, i.e., engage in activities that require a license (showing, negotiating etc.). – Not in Texas
Dear Not in Texas: You are correct. I should have stated "Most state licensing laws prohibit..." in the opening sentence of my answer ( Plumbing Water Heaters, Gas Piping, Burners and Venting, Oil Tanks, Burners and Venting, Conventional Tank Type Water Heaters ), instead of "State licensing laws prohibit….." That would have been more accurate and would have taken into consideration Title 12, Article 61, C.R.S. as Amended Part 2 (12-61-203.5. Referral Fees (1), (a)-(c). Good catch!
Dear Ask George: I have some people who want to buy my home. They signed a purchase contract with some other sellers, but came to my open house and decided they wanted to buy my home instead. I told them they had to get out of their contract first. My question is, if the buyers signed and the sellers signed but the contract was never delivered to the buyers, is there a binding contract for which the buyers could be sued for specific performance? – Question from Texas
Dear Question from Texas: It depends upon whether the buyers are represented by a real estate agent or attorney.
If they are not represented, in order for an offer to become a contract in Texas, it must be accepted (without changes) by the offeree and such acceptance must be communicated to the offeror. In this case, the offeror would be your buyers. The buyers can notify the sellers and withdraw their offer at any time before they receive notice of acceptance from the seller (offeree). Such notice, either of acceptance or withdrawal of the offer, can be a spoken notice in Texas, but I always recommend it also be followed-up in writing.
However, if they are represented, the real estate agent or attorney that represents them is included for notice purposes. Thus, if the sellers -- individually or through the sellers' agent or attorney, notified the buyers' agent or attorney of their acceptance of the offer, then the signed offer becomes a contract. The Broker should fill in the date of final acceptance -- the "Effective Date," just above the signature lines.
You should hire your own attorney to advise you on this matter. There are numerous variables involved in the "offer to contract" process.