My house sold earlier this month. I am not buying a new house right away, but... maybe? How long can I wait? How will this affect taxes? And if I could buy property, should I in order to avoid penalties (if there are any)? You are not my lawyer or my accountant, but way more details with a little bit of drama after the jump.
posted by aabbbiee to Law & Government (10 answers total)
Located in Missouri, USA.
I (female) owned the house with my former domestic partner (spiritually, but not legally married) as Joint Tenants. We bought it outright and owned it for just over 6 years. It was my sole residence for all of that time. She moved out in summer 2009 and now lives in another state. Upon selling, we agreed to an 85/15 split of the proceeds, so I received about $25,000 cash from the sale.
I moved in with my boyfriend when the house sold. Our plan is that we will be engaged later in the year, commingle finances at that time, and then get legally married in spring 2013. My boyfriend purchased this home in 2008 and has a mortgage. At some point, I will use the proceeds on my house to invest in his house and become a co-owner of his property. But I don't know what the best timing for this process would be, and how it will affect my taxes. I am hoping you will help shed some light on this, so that we can make the best decision, timing-wise.
If all things were equal, I'd wait until we were happily engaged with combined finances, and then we'd start the paperwork for this with legal marriage on the horizon, so spring 2013. After my experience with my ex, I know that joint home-ownership is a huge legal entanglement that should be saved for wholly committed couples. I see it in the same light as legal marriage. My boyfriend and I have been together about 15 months, and we are very happy and in love, but it still seems early and I'm concerned with jumping too far too fast! We're still transitioning to cohabitation right now, and the boxes aren't even unpacked.
But we'd both want to avoid the tax penalties as much as possible, and there may be other reasons (like getting in while the mortgage rates are still low) to move forward a little sooner rather than a little later. There's just not that much difference between doing this in December 2012 and April 2013. It's only a few months, and we have time to get used to the idea between now and then, if we know it will be an issue. On the other hand, if things end up not working out between us in that time (oh, god, I hate even thinking that), I am not sure what I would need to do in order to avoid those penalties without buying into his place.
So, despite all my internal drama in the last paragraph, this is not a human relations question. I'm already in therapy, Metafilter! This is really a question about the legal and financial issues at play here.
I think there used to be a thing where you had two years to buy a house after selling your primary residence or you had to pay big taxes on the proceeds, but a) I don't know if this is still the case, b) I don't know if I qualify since I only took 15% of the proceeds, c) I don't know if I qualify since I will be buying in on my boyfriend's property, and d) I don't even know if I have those facts right in the first place.
- If I wait to buy in on my boyfriend's property until mid-2013, how will my house sale proceeds be reported on my taxes in 2012? Will I be taxed on them as I would if it was income? How would it be different if I moved forward with investing in my boyfriend's property before the end of 2012?
- I have bought and sold two houses, but I have never been added to an existing title/mortgage. What is involved? I know it's complicated and that it's not cheap. I believe that the mortgage will be refinanced in this process, so it would be convenient to do this while the rates are low. Is that a reason to move forward before the end of 2012, or as soon as possible?
- I know legal marriage gets all kinds of rights and benefits that my ex-wife and I were not entitled to, but I really don't know anything about those rights or benefits. Does the process of legal marriage make any of this easier or moot? Obviously, I will not own any property that is not in my name, but maybe the process for retitling or whatever is easier in conjunction with legal marriage (like a name change is), and so waiting for that step to do this step might be prudent. However, we are not getting married until 2013, so that would have to be weighed against any tax implications.
- What if we split up and we don't go through with this? I don't believe we will, but if we did, I would then have proceeds and no house to put it in. How long would I have before I needed to reinvest the proceeds in real estate? Is that what I would need to do?
Basic overviews are fine. Let me know if you want more info.
You are not my Accountant, my Lawyer, my Doctor, or my Psychologist. I fully intend to discuss this with someone, but I'm already worried about it, and I don't even know if I should call a tax lawyer or accountant to discuss all the dirty details. Which would be better for this?
Thank you in advance!