I've got a handful of stocks that I'm planning on cashing in for a house down payment. I'm wondering if anyone knows if I will get hit with capital gains tax, if I'm immediately reinvesting the money in a home?
I'm not sure where people keep getting this idea, but I see it come up a lot.
Anyway, you pay capital gains taxes when you sell an investment that has appreciated. It makes no difference when/if you reinvest the money or what you invest it in.
If you are afraid of the tax burden you can minimize it by:
1) Selling a stock that you have held longer than a year to get the lower long-term rate.
2) Sell a stock that hasn't appreciated that much and therefore doesn't have a lot of gains to tax.
3) Sell a stock that's below purchase price (i.e. at a loss) to offset any short term gains.
Assuming that you have capital gains, you can expect to have to pay taxes on them. It might be short term, or long term capital gains. If you specify exactly which shares to sell, it is possible to sell mostly losers, thus reducing or eliminating capital gains.
There are separate rules for 401K and other retirement programs regarding down payments for a house. This leads to many other issues such as the hit your retirement will take.