My wife and I are 72 and 67 years old. We are selling our primary (and only) New York residence and buying a home in Florida this year. I believe our approximately $215,000 capital gain is tax-exempt under the $250/$500G exemption rule. Questions: Are there any other taxes or restrictions on the use of those capital gain profits in 2020 or later? Can any unspent monies from the capital gain be deposited in a new or existing IRA in my name?
There are no other taxes on a tax-exempt capital gain; but you can't deposit any of that gain into an individual retirement account.
Before explaining why, let's quickly review capital gains rules for other readers. When a married couple sell their primary residence — which is defined as a house they have owned and lived in for two of the past five years — up to $500,000 of their capital gain (aka profit on the sale) is exempt from tax. A single taxpayer gets a $250,000 exemption. (You determine your capital gain by subtracting the original cost of the house, plus the money you spent on improvements over the years, plus any sales-related expenses from the sale price.) If your gain on the sale of your primary house was $215,000, you're right that it's all tax-exempt.
OK, what about the IRA?
Until this year, people over age 70½ couldn't make IRA contributions. The age limit has been eliminated. But IRA contributions still must be made with earned income. Earned income is income earned for personal services, such as wages, tips, professional fees and commissions. It doesn't include investment income (like capital gains, interest or dividends) or income from pensions or annuities.
The bottom line
You now add to an IRA at any age, but your contributions must be made with earned income.
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