How can one write off the purchase price of a new house on US tax returns?

Question

Situation: a US citizen, living in Canada, sold one house and bought another. The difference between the purchase price of the first house and its sale price counts as a capital gain, and is more than his exemption (which is higher because he lives outside the US, but it is not infinite). However, with most of this money he then bought another house. Is there any way to subtract the purchase cost of his new house, in whole or in part, to reduce his taxable capital gain? Please point me to the specific IRS form to use to do this; please do not just tell me to refer that person to an accountant or to the IRS phone lines.

? · Accepted Answer

The roll the gain over rule ENDED in 1997.

The sale of home exclusion rule called section 121 came into play.  If this is your home (the house doesn't have to be in the USA) and you lived/owned it for at least 2 of the last 5 years, you can exclude on the US tax form $250,000 of gain.

See IRS publication 523 and IRS schedule D/forms 8949.

The foreign earned income exclusion only covers earned income, not capital gains.
The foreign tax credit follows different rules, see IRS publication 514 and form 1116.  Since you will exclude $250K gain on the US form, the schedule A deduction for foreign taxes paid may work out better for you.

Sorry, no help on the Canadian rules for capital gain.

ninasgramma · Answer

You cannot reduce the capital gains on the sale of property by reinvesting the proceeds of the sale.  Purchasing the second home is not a taxable event and is unrelated to the gain on the sale of the first home.

Bobbie · Answer

And as US citizen you do have the 2 out of 5 year for the exclusion of 250000 for a single taxpayer or 500000 of the LTCG when MFJ when you do meet the ownership rules on the date of the sale of your main home primary residence during the 2013 tax year. 
Go to the www.irs.gov website and use the search box for the SALE of MAIN HOME PRIMARY residence and start reading the rules that you would have to meet for that purpose and time in your life.
Hope that you find the above enclosed information useful. 01/26/2014

Rinkydink · Answer

My thoughts.  You have 2 independent transactions.  Capital gains are not written off on a new purchase.  If you want confirmation I suggest you get it from an accountant or the IRS.

Zeltar · Answer

You have not provided very much information in order to answer you correctly. There are a lot of dependencies, such as did he deduct any part of the house (i.e. did some business in the house) during any of the tax years the house was owned. I suggest you read the following IRS publication:

http://www.irs.gov/publications/p523/ar02.html#en_...

http://www.irs.gov/publications/p523/ar02.html#en_US_2013_publink1000200792

StephenWeinstein · Answer

One can't.  They is no way to subtract the purchase cost of his new house, in whole or in part, while he still owns the new house.  He cannot do it until after he sells or otherwise stops owning the new house.

Cathi K · Answer

No you cannot. Schedule A allows for a sales tax deduction. Writing off either state taxes paid or sales tax paid.

tro · Answer

you don't
you can claim the mortgage interest and property taxes on Sch A

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How can one write off the purchase price of a new house on US tax returns?

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