12

I've owned my home for 1.5 years and it has been my primary residence. I decided to move, and want to sell, however, I'm unsure if I have to pay capital gains.

When searching the internet I find conflicting resources. Some say I need to have owned the home for 1 year, others say 2. I've even read that if its my first home, I don't have to pay capital gains regardless of time owned.

I cannot seem to find a straight positive answer, so I am hoping this forum can provide some clarity.

I live in Michigan if that information is needed.

28

The property must be your primary residence and you must have occupied it for 2 of the last 5 years and make no more than $250,000 in gains if you're single or $500,000 if file joint tax returns with a spouse.

There are exceptions, for instance for members of the armed forces.

Official IRS document regarding this subject: https://www.irs.gov/taxtopics/tc701

I believe everything you need is spelled out in that article and the accompanying link that will take you to the "Exclusion Test" to see if you're eligible for partial gains exclusions: https://www.irs.gov/publications/p523#en_US_2019_publink10008937

| improve this answer | |
  • so if hyperinflation hit, you would be better off selling your house before it hit the $500k limit and then somehow buying it back without involving a wash sale or realtor so as to reset the limit? – Michael Sep 16 at 21:10
  • and to be fair, hyperinflation not even really necessary. in some place, buying for the median home price and holding until the 30 year mortgage is paid off may result in more than $500k in imaginary gains entirely due to inflation. (or moreso for $250k if your spouse dies) – Michael Sep 16 at 21:13
  • 3
    Is that $250k just from the sale of the house, or is it your net gains after buying another house after selling the first one (usually when you sell a house it is because you are buying another one)? I'd hate to have to pay capital gains tax on a $260k home when I am turning around and buying another one (of any value), for example. – TylerH Sep 16 at 22:09
  • 3
    @TylerH - Unless you bought that $260K house for $10K or less, you wouldn't have a gain of $250K. If you sold that $260K house for $510K+ (and file individually), then you would start looking at taxes. Whether or not you buy another house has no bearing, but the price you sell for vs the price you originally paid is what matters. – BobbyScon Sep 17 at 1:42
  • 2
    There is a rule that does allow you to defer taxes when using the proceeds of selling a property to buy another property (Section 1031), but it only applies to a business or investment property, not a primary residence (and it only defers the gains, they don't go away.) – Glenn Willen Sep 17 at 3:11
3

How much (percentage) has the home appreciated in 1.5 years?

If you're selling at the same price or less than you bought it then there are no gains to be had and no taxes to be paid.

If you are selling above your purchase price then you can add qualified home improvements which you may have done during your occupancy to your cost basis.

https://www.houselogic.com/finances-taxes/taxes/tax-breaks-capital-improvements-your-home/

If you still feel unsure then talk to a real-estate agent or preferably a real-estate lawyer or even a tax professional.

| improve this answer | |
  • 1
    Not exactly. Make sure that you understand the differences between repairs and improvements when you are talking about renovations. houselogic.com/finances-taxes/taxes/… – Morgan Roberson Sep 16 at 20:32
  • @MorganRoberson Thanks, added! – MonkeyZeus Sep 17 at 12:30
  • As the seller usually pays the realtor fees, that's 6% down the drain before capital gains as well – user662852 Sep 17 at 15:16
  • @user662852 I forgot about those but they're not relevant for OP since they exist regardless of capital gains or a wash/loss. – MonkeyZeus Sep 17 at 15:20
  • 1
    @MonkeyZeus Not sure how realtor fees are not relevant, since they would certainly factor into reducing any potential capital gains. – Glen Yates Sep 17 at 16:57

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.