"My Mom is 79 and just sold her house in Louisiana for $150K which was free and clear. Her basis on the home would have been about $75K. She is buying a new home in Georgia for $190K. She will obtain a reverse mortgage on the new home for $60K. What would the tax impact be on that transaction? I'm hoping she can use her one time capital tax gain exemption and not have to pay any taxes. Does she have to file a tax return because of this transaction when she is not currently required to file due to her income level? " 

Answer:  It appears that under the Sale of Residence Exclusion Rules (Section 121 exclusion) the sale of Mom's home in Louisiana will NOT trigger the need to file a tax return, nor will she owe taxes on the gain.  A taxpayer can exclude from income up to $250,000 ($500,000 for married couples who file jointly) of gain from the sale of a personal residence if the following two tests are met:

• Ownership and Use:  The individual must have owned and used the home as a principal residence for at least two out of the five years prior to the sale (the two years do not have to be consecutive).
• Frequency Limitation: The exclusion applies to only one sale every two years.

NOTE: The "one-time capital tax gain exemption" is no longer in effect.

Diane Reumont, MBA, CPA
David A. Reumont, CPA, PC
Silver Spring, Maryland
301-438-0510