5

My workplace situation may require that I sell my house and move into an employee-provided apartment.

I have heard that if I sell my house one year, and don't use the money earned to buy another house, I'd be taxed on the earnings as if it were income.

Is there any way I can sell a house, hang onto the money for a future house payment a few years in the future, without having to pay income tax on it?

Improve this question
4
  • 1
    When you say "my house", I'm guessing that you are referring to your primary residence in which case @littleadv's answer is excellent. The thing you have heard of is likely a 1031 exchange (investopedia.com/financial-edge/0110/…) which allows you to swap investment properties without realizing gains. But there are timing rules on 1031 exchanges that would require you to buy the new property in much less than a few years.
    – Justin Cave
    Commented Nov 14 at 4:45
  • 5
    Employee-provided?
    – bmargulies
    Commented Nov 15 at 16:25
  • If you aren't eligible for the exclusions mentioned in the posted answers, there is another practical way to avoid income tax: Don't sell the house, instead keep it and rent it out. If you don't have the time to be a landlord you can hire an agency to manage the property for you.
    – The Photon
    Commented Nov 15 at 16:36
  • 1
    Consider renting your place out instead of selling it now ? Or ask the employer to not-provide housing and pay you money instead?
    – Criggie
    Commented Nov 16 at 4:03

2 Answers 2

Reset to default
16

In the US, once you realize gains it is taxable. So no, there's no way in general.

However, for real estate there are a couple of special rules, one relevant in particular is the primary residence exclusion. The rule is under the IRC Sec. 121, and allows excluding up to $250K ($500K if married filing jointly) of gain from taxable income. In practice for many sellers that would mean a completely tax-free sale of primary residence.

Generally you'd need to live in the house at least 2 years in the 5 years preceding the sale for it to apply, but if the move is job-related then the period may be shorter.

See more details and conditions on the IRS site on this topic (Publication 523).

Improve this answer
3
  • Aren't you double counting the purchase price @keshlam when you say 'Subtract the purchase price' and then later on 'a great deal of your sale price may get sucked up in paying off the mortgage'? Also, maintenance costs aren't deductible nor do they contribute to the basis cost of the home. We are talking about primary residences here. Paying off the mortgage has no impact on identifying what the profit is from the sale.
    – David Jacobsen
    Commented Nov 15 at 14:08
  • You're right, maintenance costs are not deductible for a primary residence. Home improvements are, I believe. And yes, for tax purposes I think I was double counting the purchase price; the mortgage reduces how much you get to pocket, but not how much the profit was. I'll fix.
    – keshlam
    Commented Nov 15 at 14:33
  • Revised: Assuming US: Note that you would owe tax on the profit from the sale. Subtract the purchase price. If you have kept good records to account for them, you can subtract cost of home improvements (but not maintenance/repair). You should already be figuring interest into your taxes, so you can't subtract the cost of the interest again. The actual profit after everything is figured in may be small, and could even be negative.
    – keshlam
    Commented Nov 15 at 14:39
5

I have heard that if I sell my house one year, and don't use the money earned to buy another house, I'd be taxed on the earnings as if it were income.

When the law changed in 1997, the roll-over rule ended. Before that change if you put the gains into the next house you could defer the gains, until there was a lump sum provision once you sold after the age of 55.

Is there any way I can sell a house, hang onto the money for a future house payment a few years in the future, without having to pay income tax on it?

All this assumes that this was your principle residence, and it has been for at least 2 of the last 5 years. If it was or is a rental property the tax calculation becomes more complex.

You have to first figure if there are any gains, and if they are taxable. If you met the time requirement, and the gain was less than 250K or 500K (married filing jointly), there will not be any federal capital gains.

If the first approximation of the price you sold the house for minus the amount you paid for the house would exceed the 250K/500K exemption, then you have to look at the details. The details include closing costs involved with the two transactions, and any home improvements such as remodeling a bathroom, adding an addition.

IRS pub 523 has details regarding time lines and what counts as an improvement.

My workplace situation may require that I sell my house and move into an employee-provided apartment.

One thing that was interesting was there still is a partial exclusion for a job related move:

Does Your Home Qualify for a Partial Exclusion of Gain?

If you don't meet the Eligibility Test, you may still qualify for a partial exclusion of gain. You can meet the requirements for a partial exclusion if the main reason for your home sale was a change in workplace location, a health issue, or an unforeseeable event. Work-Related Move

You meet the requirements for a partial exclusion if any of the following events occurred during your time of ownership and residence in the home.

  • You took or were transferred to a new job in a work location at least 50 miles farther from the home than your old work location. For example, your old work location was 15 miles from the home and your new work location is 65 miles from the home.

  • You had no previous work location and you began a new job at least 50 miles from the home.

  • Either of the above is true of your spouse, a co-owner of the home, or anyone else for whom the home was her or his residence.

Note: Ask your employer if the apartment they provide is considered taxable income. There are rules related to that situation.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .