Q:  I've owned my condo less than 2 years. Now, my husband and I are expecting a child and need to move into a bigger residence. Does the birth of a child qualify for an exemption from paying capital gains tax on a property I have owned for less than two years?

A:  Apparently not. IRS defines unforeseeable circumstances as multiple births from the same pregnancy.

A portion of the exclusion is available for those who lived in their residence for less than 24 months, but had to sell the residence for health or job-related reasons or other unforeseeable circumstances, including: death; becoming eligible for unemployment compensation; a change in employment that leaves the taxpayer unable to pay the mortgage or reasonable basic living expenses; multiple births resulting from the same pregnancy; damage to the residence resulting from a natural or man-made disaster, or an act of war or terrorism; and condemnation, seizure, or other involuntary conversion of the property.

Q:  I am a United Kingdom resident and citizen. I just sold a vacation home located in the U.S. and made a $30,000 profit. Do I have to pay tax on this profit?

A:  Yes. You owe capital gains taxes on the profit. Under U.S. law, the buyer or the escrow agent was supposed to withhold taxes equal to 10% of the sales price, and pay the taxes to the Treasury. You are then entitled to file a tax return (Form 1040 NR) to claim any refund due you because of the withholding.

Q:  We purchased a real estate investment property in Australia. How do we declare the rental income earned abroad?

A:  If you are U.S. taxpayers, you treat the rental as though it were located in the U.S., except you may be entitled to a foreign tax credit for a portion of any taxes paid to Australia. You'll probably have to complete an Australian tax return as well.

Q:  Is a stock option taxable in the state of residence when it was granted or in the state of residence where it was finally exercised?

A:  If an employee stock option vests while the taxpayer is a resident of California, the exercise of the option will be taxable in California, either as compensation income or an AMT preference (if the option was an Incentive Stock Option). Once the option is exercised, the later sale of the actual stock will be taxed in the state of residence at the time of sale. Thus, if you early exercise your options while a California resident and pay little or no tax on the transaction, then legitimately move to Nevada and sell your stock, there should be no state tax on the sale of the stock.

The browsable version of this page: February, 2004 FAQ

All contents copyright © 1995-2004 Robert L. Sommers, attorney-at-law. All rights reserved. This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.