Can someone please explain to me what this means or how this works?
If you buy a home, live in it as your primary residence, and sell it for a profit, you do not have to claim the profit on your taxes. That’s the general gist, and an over simplification, but conceptually that’s how it works.
If it is not your primary residence, i.e. it’s a rental property, you have to pay taxes on the profit, since it is an investment like any other.
Whether or not it is your primary residence depends on how long you’ve lived there. There are other rules that prevent you from constantly flipping properties for profit and not paying tax, and there’s a limit on how much is exempt, but it’s in the hundreds of thousands of dollars.
Why are you irritated? You didn’t have a problem with the legality of the situation could potentially cost you extra money, right?
Heat him up 'til he’s very nearly melted, then squeeze him through a small hole in the shape you want him to take.
Oh, wait. That’s extrude, not extort. :smack: :smack:
I’m reading one more thing into **Lightnin’**s posts: he’s frustrated that the landlord is reneging on the original verbal addition to the contract, whereby the landlord said he’d sell Lightnin’ the house.
Even if the landlord is trying to screw the IRS, it doesn’t give Lightnin’ a license to act unethically.
If I were him, I wouldn’t burn any bridges. He may find a house tomorrow or he may find one in 6 months. With only 2 months remaining on the 6 month contract (that the OPer insisted on), it’s highly unlikely that he’ll find a house and be able to close within the next 30 days anyway. And if he doesn’t find a house right away, he may very well want to extend to a month-to-month tenancy. Pissing off the landlord does nothing to futher his cause.
Besides, as others have said, Lightnin’ insisted on a 6 month contract. Now be a gentleman and follow through on your word.
Are you sure he’s trying to trying to duck the capital gains tax hit? You don’t have to reside in your home at the time of the sale in order to claim the $250K exclusion. The IRS requirement is that you must have used the property as your primary residence for 2 of the previous 5 years. So as long as he resided in it for a total of two years before he rented to you, he’s going to be able to claim the exclusion regardless of whether it’s his primary residence now.
My not-very-helpful advice is that you both sound like people of questionable ethics to me, Lightnin’, both you and your landlord, and you deserve each other. Do yourself a favour and do the right thing here - stand by the agreement you made, and work something out with your landlord. It’s only for a couple of months; real estate deals usually take that long anyway.
If you want to turn your landlord in, do it because it’s the right thing to do, not for your own personal benefit. The IRS is not stupid, and he’s not the first person to play this game. If he’s red-flagging the system (and I don’t doubt he is or will be), he’ll get audited soon enough.
It sounds like the problem is that the landlord hasn’t lived there for 24 months.
Perhaps one tactic is to stamp “No Longer at this Address” on all of the landlord’s mail and return it.
It doesn’t make it ethical.
Are you sure he is trying to defraud the IRS? Or maybe just his mortgage company? I’m not sure how it may work in other areas, but around here a buyer must make a much larger down payment and pay a higher interest rate if the dwelling is for rental purposes. So, investors will sometimes say the house will be their primary residence to get the more favorable loan terms, then live in the house a short time or not live there at all, just have the tax bill and mortgage papers sent there. The owner of the tri-plex next door to me actually added a fourth mailbox for himself.
Maybe your landlord’s mortgage requires that the house be his primary residence to keep the favorable rates. Not ethical to defraud the mortgage company, but not nearly as serious as messing with the IRS.
What he is trying to do is claim that the rental house was his primary residence and then when he sells it he gets to exclude the $250,000 of the gains, thus making tax-free.
Damn, I shouldn’t post while doing something else.
What he is trying to do is claim that the rental house was his primary residence. When he sells it he gets to exclude up to $250,000 in gain, making ittax-free.
Yeah, but it seems that that is just Lightin’s speculation on what the landlord might be planning to do at some point in the future. The man hasn’t sold the house yet or filed his taxes, so it seems to me that it’s nothing to hold over his head or get all riled up about now.
Not necessarily, as you pointed out, the mortgage company might be giving him the favorable rates because they think that he is residing at the rental. You could then make the argument that he is defrauding the bank. Not a great argument, IMHO, but an argument none the less.
I think that based on his keeping the rental as his address of record, it is pretty obvious what he intends to do. After it happens, Lightnin could sell him out to the IRS, or he could put him on notice that he intends to do so upon the sale of house. Either way, he still has to pay rent and he may get in a pissing match with the owner which helps nobody.
My advice to Lightnin is stick with the lease. You probably don’t have that much time to go on your lease anyhow, and between finding a place, closing on it, fixing it up a bit, and moving, a good chunk of time may go by.