Quatloos!

I just have a quick question for anyone familiar with this situation. I am considering selling my home in order to move to find a better work situation. There is some equity in the house and multiple NOFTLs in place. When the house sells I "get" that the IRS will take all the "proceeds" but am I also going to be expected to pay income taxes on the amount the IRS takes. This is what happened when they cashed out my 401K a few years back--they took 100% of the $$ but I was still liable for the 30% tax on the proceeds which simply increased the amount I owed for that year and was unable to pay. Thanks in advance for any assistance.

IIRC, (and it is something I have not worked with in the past 5 years), you will only pay income taxes on the amount of GAIN that is greater than $250,000 ($500,000 if MFJ) Gain is the difference between what you get for the property less what you paid for the property (plus capital improvements). If you bought for $100,000, and sell for $400,000, and are filing single, you would only pay tax on $150,000 of the gain, NOT the entire $300,000.

LaVidaRoja wrote:IIRC, (and it is something I have not worked with in the past 5 years), you will only pay income taxes on the amount of GAIN that is greater than $250,000 ($500,000 if MFJ) Gain is the difference between what you get for the property less what you paid for the property (plus capital improvements). If you bought for $100,000, and sell for $400,000, and are filing single, you would only pay tax on $150,000 of the gain, NOT the entire $300,000.

Correct, except for the math. Sell for $400,000, with your cost basis having been $100,000, results in a $300,000 gain. Of that gain, assuming you are single, $250,000 is non-taxable and $50,000 is the taxable portion of the gain.

And of course if you're married filing jointly, the entire $300,000 gain is non-taxable.

And, "gottago," God bless you. I hope things are working out for you.

One other wrinkle regarding the sale, unrelated to the taxable-gain issue: If the proceeds from the sale do not fully satisfy the lien, the buyer may need to apply for a certificate of discharge of the tax lien in regards to the property with the IRS in order to make the title insurance company happy. Otherwise, they may not not issue the policy and this would delay the closing of escrow. It is usually a good policy for the buyer to do this upon opening of escrow since the IRS is not likely to authorize the discharge in a short time frame.

The IRS is going to need to review the terms of the sale, the estimated closing costs and relevant documents showing exactly to who the proceeds are going and how much, along with the appraisals for the property. The process is for the IRS to determine that all closing costs are reasonable and customary, and that they will realize the maximum gain from any remaining proceeds. It is not unusual for the IRS to "disallow" any fees and charges that they believe are not in line with industry charges and they will certainly disallow any other proceeds to other claimants who did not contribute or were not necessary to the sale of the home. These kind of issues could also hold up the discharge being issued and/or escrow closing.

Thanks, since the proceeds will not be anywhere close to the amount of the NOFTLS and the house is probably going to sell for about 20% less than I paid for it due to the housing market and some damage from a lightning strike a couple of years ago it does not appear that I have any additional tax to be paid. I will talk to a realtor friend and find out about what to do with the NOFTLs being discharged once it is sold. Thanks again.

Hi All,
Thanks for sharing and rectifying the data.
I hope those who were not sure about the correct amount will now have the accurate figure.


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