St. Paul recorder. [volume] (St. Paul, Minn.) 1934-2000, 1962-02-02
Buying And
SeIIino A Home

SSaauS4 - BlSHlAS
(ThiS is one of a series
Of articles on income taxes
made available as a public serv-
ice by the Minnesota State Bar
Association, Public Relations
COmmittee.)
AS discussed in an earlier article,
you are required to include In
your gross income the profit you
made on the sale of your personal
residence. This profit is normally
the difference between the sales
prices less agents commission and
the purchase price of the house
when you bought it.
However, this additional income
can be postponed in the situation
where you buy and occupy a new
residence within the two-year per-
iod commencing one year before
the sale and ending one year after
the sale. If your new home costs
less than the amount you realized
from your old house after deduct
ing therefrom the agents commits
sion, selling expenses and the
amount you spent to fix the house
up for sale during the ninety-day
period before which the house was
sold, the gain realized on the sale
of your old house will be taxed to
the extent of this difference.
For example, If you paid SIC, 900
for your old house and sold 1t for
SIS, 900, you made profit of $4,000
or more, you report no profit on
the sale of the old house. You
must, however, reduce the cost of
the new home for later sale pur-
poses by the amount of the profit
you received on the old home. Thus,
your new house cost would be re-
duced $4,000 by the profit you
realized on the sale of the old
residence and it would have cost
of $4,000 for later sale purposes.
If you spent $500 fixing up your
old house for sale within ninety
days before selling it, and if you
bought your new house for $4,000
rather than the SIS, 900 figure used
in the example above, you would
deduct the $500 from the $4,000
sales price to obtain the adjusted
sales price. Inasmuch as the pur-
chase price of the new house was
less than the adjusted sales price
Of the old home, you would have
to include the net difference or
81, 500 as a capital gain in your
gross income. The basis of your
new house for subsequent sale pur-
poses would then be reduced by the
difference between the total profit
made on the sale of your old resid-
ence, $1,000, and the amount you
showed as income when you bought
the new residence, $1,000 or $500.
Note that the $500 fixing-up ex-
pense is used to determine the ad-
justed sales price for determining
the amount of gain on which tax is
postponed but does not reduce the
profit on the sale of your old home
for purposes of determining the
cost basis of your new home.
Often you sell your old house in
one year and don't buy a new one
until the subsequent year. Where
this occurs, you should show the
fact of sale in your tax return for
the year of sale and indicate that
YOU intend to buy new house
within the one-year period. When
you later purchase a new house
and if you have gain to report be-
cause the new house costs you less
than the sales price Of the old
house, you should amend your re-
turn for the year in which the old
house was sold.
If you want to build new house
to replace the old house sold, you
are entitled to these tax benefits
only if the house is completed
within eighteen months after the
old house is sold and construction
begins either prior to the sale of
the old residence or within one
year after the date of sale of the
old residence.
The rules and computations dis
cussed in this article apply to the
reporting of income for both your
Minnesota and Federal tax returns
CThis column, based on Mime
sofa and Federal law, is written