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What are the tax implications of a normal sale of a house, where the owner would make a "profit"? Does it make any difference if the house is owner occupied and for how long they have owned the house?

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A single owner can have a gain up to $250K with no federal tax consequences. $500K for a couple. Above that, it's a capital gain. They must have lived in the home for 2 of the 5 years prior to the sale, else the numbers may scale back, if allowed at all.

If it was not owner occupied, the above is ignored, a rental has rules far more complicated, as the property must be depreciated during the time it was owned, and often there's a gain to be taxed for the fact that depreciation lowers the basis each year.

Edit - if the 2 years is not met see Reduced Maximum Exclusion for possible partial exclusion depending on cause of sale.

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  • What are the numbers scaled back to if the occupancy is less than two years?
    – C. Ross
    Apr 15, 2013 at 0:32
  • Edited my answer to include reference. Apr 15, 2013 at 0:39
  • The scaling back is for only very limited circumstances, for most it just disappears.
    – littleadv
    Apr 15, 2013 at 0:53
  • @littleadv - edited my wording a bit to your comment. Apr 15, 2013 at 1:43

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