I'm a newbie to the Dreamers family...just discovered the site a couple of weeks ago and this is my first post. My partner and I are on the 1-year plan...we hope to be on the road no later than July 1 2010. So right now I'm in the mode of learning as much as I can, although realizing that I'll never have all of the answers. With that said, I do have a question that I haven't seen addressed anywhere (although I'm sure it has been!). Our plan is to sell the house and invest the proceeds as our fallback...either because we choose to go back to the sticks and bricks and need a down payment (doubtful) or because we can't make ends meet by working on the road (a little concerning but pretty confident it won't be a problem) or once we confirm how much we actually love it, we'll want to upgrade our unit (most likely). I've always been under the impression that if you don't reinvest the proceeds in another piece of real estate, you incur big capital gains taxes. So I'm curious what those of you who sold a sticks and bricks house did with your money. Is investing in an RV the same as investing in real estate as far as the IRS is concerned? I also heard that you get a one-lifetime "freebie" from paying capital gains tax. Is that true? What are the downsides, if any, to using that freebie now? On a related note, are there any good websites that talk about all of the tax consequences of fulltiming. For those of you who work on the road, do you use a tax accountant to figure out all of the compexities? Is there any such thing as a fulltimer-specialized tax accountant? Sorry for the myriad of questions, but I have so many!
Howard said
12:36 AM Jun 27, 2009
Welcome Contra!
I'll address your house proceeds question first.
You have a common misconception regarding capital gains on a home sale. It used to be the law that you had to re-invest the proceeds from a home sale to exclude capital gains. There also use to be a one-time capital gain exclusion for folks over 55. However, the good news is the law is much better for home sellers now. No need to worry about the older laws.
With the Taxpayer Relief Act of 1997, any home seller can exclude up to $250,000 of capital gain for singles and up to $500,000 of capital gain for married couples. You don't have to reinvest the proceeds.
However, there are some requirements.
1. The house must be your personal residence. 2. You must have owned and lived in the house for 2 of the last 5 years prior to the sale. 3. You must not have sold another principal residence within the last two years. In other words, you can basically sell as many homes as you want and never pay tax on the capital gains as long as there is at least two years between each sale and you meet the other criteria. 4. If you used the house for business purposes or as a rental property and you took business deductions such as depreciation, you must reduce your capital gains exclusion by the amount of deductions you took or could have taken. That part can get really complicated, but it's not an issue for most people.
So most folks can exclude all of their capital gains on a home sale. Partial exclusions are also available if you don't meet all the requirements above. If you do have gains over $250,000 (singles) or $500,000 (married couples), you can still exclude a very significant portion of your capital gains up to the limits above.
Hope that makes you feel better.
As for websites discussing tax issues for full-timers, I don't know of any that offer comprehensive information. Mostly, there are discussions of choosing a state of residence and the tax reasons why some states are better than others.
I hate to toot our own horn, but our Workamping Tax Implications page is probably the most detailed web page you will find on that subject. And it may answer many of your questions.
Some full-timers use accountants and some do everything themselves. It depends on what they were comfortable with prior to full-timing and how much their tax situations may have become simpler or more complicated.
I know of no accountants specializing in full-timer issues. Most accountants and financial planners I know would probably advise against full-timing - it is not necessarily the smartest idea from a purely financial standpoint.
Good questions for your first post. Welcome to the Family!
I'm a newbie to the Dreamers family...just discovered the site a couple of weeks ago and this is my first post. My partner and I are on the 1-year plan...we hope to be on the road no later than July 1 2010. So right now I'm in the mode of learning as much as I can, although realizing that I'll never have all of the answers. With that said, I do have a question that I haven't seen addressed anywhere (although I'm sure it has been!).
Our plan is to sell the house and invest the proceeds as our fallback...either because we choose to go back to the sticks and bricks and need a down payment (doubtful) or because we can't make ends meet by working on the road (a little concerning but pretty confident it won't be a problem) or once we confirm how much we actually love it, we'll want to upgrade our unit (most likely).
I've always been under the impression that if you don't reinvest the proceeds in another piece of real estate, you incur big capital gains taxes. So I'm curious what those of you who sold a sticks and bricks house did with your money. Is investing in an RV the same as investing in real estate as far as the IRS is concerned? I also heard that you get a one-lifetime "freebie" from paying capital gains tax. Is that true? What are the downsides, if any, to using that freebie now?
On a related note, are there any good websites that talk about all of the tax consequences of fulltiming. For those of you who work on the road, do you use a tax accountant to figure out all of the compexities? Is there any such thing as a fulltimer-specialized tax accountant?
Sorry for the myriad of questions, but I have so many!
Welcome Contra!
I'll address your house proceeds question first.
You have a common misconception regarding capital gains on a home sale. It used to be the law that you had to re-invest the proceeds from a home sale to exclude capital gains. There also use to be a one-time capital gain exclusion for folks over 55. However, the good news is the law is much better for home sellers now. No need to worry about the older laws.
With the Taxpayer Relief Act of 1997, any home seller can exclude up to $250,000 of capital gain for singles and up to $500,000 of capital gain for married couples. You don't have to reinvest the proceeds.
However, there are some requirements.
1. The house must be your personal residence.
2. You must have owned and lived in the house for 2 of the last 5 years prior to the sale.
3. You must not have sold another principal residence within the last two years. In other words, you can basically sell as many homes as you want and never pay tax on the capital gains as long as there is at least two years between each sale and you meet the other criteria.
4. If you used the house for business purposes or as a rental property and you took business deductions such as depreciation, you must reduce your capital gains exclusion by the amount of deductions you took or could have taken. That part can get really complicated, but it's not an issue for most people.
So most folks can exclude all of their capital gains on a home sale. Partial exclusions are also available if you don't meet all the requirements above. If you do have gains over $250,000 (singles) or $500,000 (married couples), you can still exclude a very significant portion of your capital gains up to the limits above.
Hope that makes you feel better.
As for websites discussing tax issues for full-timers, I don't know of any that offer comprehensive information. Mostly, there are discussions of choosing a state of residence and the tax reasons why some states are better than others.
I hate to toot our own horn, but our Workamping Tax Implications page is probably the most detailed web page you will find on that subject. And it may answer many of your questions.
Some full-timers use accountants and some do everything themselves. It depends on what they were comfortable with prior to full-timing and how much their tax situations may have become simpler or more complicated.
I know of no accountants specializing in full-timer issues. Most accountants and financial planners I know would probably advise against full-timing - it is not necessarily the smartest idea from a purely financial standpoint.
Good questions for your first post. Welcome to the Family!