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How Military Can Avoid Paying Capital Gains on Real Estate

How Military Can Avoid Paying Capital Gains on Real Estate


welcome to the Rich on Money show. I’ve
actually never called this a show before but I might as well call it one this is
the Rich on Money show and today I’m gonna talk about capital gains exclusion
on real estate for military and it’s an awesome subject and something a lot of
people don’t know about but before I get into that let me talk about Rich on Money what I’m all about I’m a YouTube page and a real estate blog where I talk
about if you’re in the military ways you can save money on real estate and
maximize your finances and I specialize in doing that for military folks so
check me out if you like this video today subscribe thumbs up it tell people
about it and I want you to leave a comment below letting me know what you
think and if you have any questions to ask about this particular subject please
do so let’s dive into this let’s get going I want to get through this fast
alright let’s get these videos shorter and just to the point here we go do you
know about the massive capital gains tax breaks for the military this refers to
real estate it is the capital gains exclusion when you sell a property and
you make money now this is actually available to everybody but it’s actually
a more souped-up version if you’re in the military you get extra benefits if
you’re in the military and this is a really good thing you do not have to pay
tax on all a part of the gain from a sale when you sell your primary home a
main home can be a house house boat mobile home apartment condominium and
this is called capital gains when you sell but you sell something for more
than you bought it for and it’s like an expensive item cars stocks bonds are all
capital assets a home is a capital asset because it’s extinct it’s a significant
piece of property when you sell it for more than you paid for it
that’s a capital gain it’s like when you buy a stock and then you sell it and
then you’ll see that all these forms you got to fill out for those of you that
have bought and sold stocks and then filed your your IRS forms your tax forms
you got to pay taxes on that but when you buy and sell a house and have a
capital gain and you do it under the right circumstances you cannot pay for
that capital again that’s what I’m going to talk about today and you need to meet
the ownership and use test so let’s talk about that the ownership and use test if
you over the five-year period before you sell the house lived in the home and
owned the home for at least two years then you can exclude then basically you
don’t have to pay you don’t have to pay the property tab you don’t have to pay
the the taxes on it you don’t have to pay capital gains tax you can keep the
profit that is big big money that is a thing that you want I was able to do
that on one of my properties and I wouldn’t have been able to do it without
the military benefit and I’ll talk about that in a second but how much can you exclude is it
unlimited I mean can you just exclude like a million there are two million
dollars no dream on the US government would never let you exclude that much
there are limits if you’re single you can exclude up to two hundred and fifty
thousand dollars and if you are filing jointly you can exclude up to five
hundred thousand dollars and this exclusion is allowed each time you saw
your mate your main home but not more than once every two years there are some
people that are so good at this that they sort of flip homes every two years
live in and flip a home in for two years and they’re able to do that tax-free
using this system so what’s the deal I have not told you yet I’ve not told you
what the Armed Forces side of this is what the military side of this is well
if you live in the house two of the last five years
you can have a tax-free sale that applies to everybody military or not so
what’s the big deal with being military why is it so special to be military it’s
special because you get to tack an extra ten years onto that five years so for us
if you lived in the house two of the last 15 years then it is a tax-free sale
and the capital gains are yours to keep instead of two of the last five years
two of the last 15 years that is a big big bonus now we have to deploy we have
to move every one to three years and that makes it really really hard to
satisfy the two out of last five year rule but two out of the last 15 years
now that’s a bit easier and that gives more time to build up equity in these
homes all right so this is awesome so make sure you take advantage of this
now this doesn’t you have to be unqualified official extended duty as a
member of the Armed Forces I’m going to read what that means that means that you
have to be at a duty station at least 50 miles from your main home or live in
government quarters under government orders or be on extended duty when you
were called or ordered to active duty for a period of more than 90 days or for
an indefinite period kind of just being on active duty is a pretty easy way of
satisfying this and then of course you don’t want to be like stationed less
than 50 miles from your primary residence or that kind of screws it up
you need to like you know I have to you know be sort of called away from your
primary residence like to a different state or something or some are a bit
further away so let me tell you the story of my primary residence which is
really the only primary residence I’ve ever had I bought a house in Alexandria
Virginia in 2003 a townhouse for $280,000 and what month was it in I
think it was in June of 2003 her now is August August of 2003 about a house for
an $80,000 a townhouse and then I sold that house in 2016 alright 2016 I think
it was June for more than 400,000 so I made a good decent chunk of change I had
capital gains that was 13 years I think so under the old system or you had to be
you know or I’d say under the normal system where you have to live in the
house two of the last five years I would not qualify for a capital gains free you
know sale and I’d have to pay taxes just like if it were an investment property
or something I would have been screwed I would had to pay a lot of money out of
pocket or I’d have to take a good portion of that appreciation and give it
to Uncle Sam however with the military sort of exclusion on this where I could
add ten years to over the last 15 years that brings me to to max of 2018 instead
of 2008 I qualified and this house was a capital gains free sale and I kept all
the capital gains and that made a large difference to my bank account
so thank you Uncle Sam and make sure that you guys take advantage of stuff
like this important notes important notes to remember if this is helpful
today give me a thumbs up subscribe hey leave in the comments were you listening
to this from I want to hear from you guys alright you can not apply this rule to more than
one property at a time or all right stop trying it
stop trying to cheat it’s not going to work according to the IRS rules on
capital gains this rule can also apply to taxpayers who have recently left the
military what does that mean it means that if you separate or retire and maybe
you you know six months or a year later then you saw your house apparently this
can still apply so this doesn’t end the second you separate from the military
there’s some leeway I don’t know how much leeway exactly and
that is actually unclear but talk to a tax attorney talk to a tax specialist
you might be able to take advantage of this this is in the tax code I have
links to it so you might get away with not paying capital gains but when you
sell a house even if the capital gains are you know yours to keep you will have
to pay something called depreciation recapture and that means it’s kind of
complicated but the whole time that you own a home you’re able to depreciate it
every year and that just means that you’re saving money on taxes every year
by depreciating the property depreciating the building and in some
cases items that are in the building and depreciation is an awesome thing and
it’s a tax savings but it is in many cases a temporary tax savings and that
tax savings is recaptured by the government when you sell the property
and then they get it all back and in some cases a little bit more so just
keep that in mind and I have a link if you want to understand more about that
in my blog I’m not a tax attorney or a CPA so you need to check your situation
with a professional that’s a little bit smarter than me before making important
financial decisions like trying to do this on your own and then just
referencing my blog when you get audited that would not be a good idea don’t do
that have you taken advantage of this opera not awesome opportunity for
military members any questions about it hey leave a comment for me and if you
have any questions let me know this is the rich I Money show peace out


Reader Comments

  1. Thanks, Rich… I wasn't sure about this – thanks, for the confirmation regarding the 15yrs rule!
    I'm a 'soon-to-be-Retired' Servicemember, currently on his final tour (25yrs Active Duty Service).
    During 2014, I purchased (with a 15yr Note) a Home in N.Virginia, wherein I'm currently residing (it has been my Primary Residence for exactly 4yrs & 6mo, now).
    The way your article (https://richonmoney.com/category/real-estate/), as well as this video, explain … I might avoid future Tax obligations (specifically, Capitol Gains) resulting from the sale of this Home, even if I were to [here comes a sequenced-scenario for you…]:
    1) Move out of the Home, during the next 4-7months, as I prepare to Retire;
    2) Then, affect military Retirement during Nov'19;
    3) Rent-Out the Home for the next 9yrs, using it as a passive-income source;
    4) Sell the Home [as late as] 2029, once the Mortgage Note has been satisfied;
    5) Realize a profit (hopefully, as long as my [former]Home's sale price is higher than I paid, during 2014).
    6) With my 2029 Federal Tax Return, Submit Form [????], which will explain to the IRS:
    a) I was Active Duty when I originally purchased the Home; and,
    b) I lived within the Home as my Primary Residence for 4+years; therefore,
    c) I have no obligation to pay Capital Gains on any profit resulting from the Home's sale.
    I realize you're not a CPA; but, does anything in my scenario seem out-of-whack w/ respect to the IRS' rules?

  2. Fantastic vid, Rich. Took advantage of this little gem in the Tax Code this year. Bought the house in 2010 as my primary residence, PCS'd in 2014 and used as a rental until 2018 (year of sale). Thanks for spreading this useful content!

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