OldWolf
Returning Member

Capital Gains Tax

I've been in my primary residence home less than 2 years and will be selling. The proceeds from the sell will go towards the purchase of a new home that will be my primary residence. Will I be subjected to capital gains tax in this scenario?

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What you do with the proceeds will not change the taxablility of the sale ... rolling the proceeds to the next home was done away with years ago.

 

If the 1099-S was for the sale of your main home, it’s reported under Less Common Income in the Wages & Income section. Here's how to enter the form:

  • Open your return.
    (To do this, sign in to TurboTax and select the blue Take me to my return button.)
  • Type “sale of home” in the Search box.
  • Select the “Jump to” link in the search results.
  • Follow the screens to enter the info from your 1099-S.

Profits of up to $250,000 ($500,000 on a joint return) on the sale of your home may not be taxable if it was your primary residence for two of the last five years. We’ll ask you some questions about the sale of your home to see if you qualify.

 

Under certain circumstances, you may be able to avoid paying taxes if you lived there less than 2 years.  The most common is moving due to relocating for work, but see Publication 523 for details:

https://www.irs.gov/publications/p523#en_US_2017_publink100073096 

 

 

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The sale is standalone, what you do with the profits doesn't matter.

 

If you owned and lived in the home less than 2 years you do not qualify for the automatic capital gains exclusion, and will pay capital gains tax on the entire gain (long term capital gains if you owned the home more than 1 year, short term capital gains if you sell in exactly one year or less).

 

There are some circumstances that might qualify you for a partial capital gains exclusion, if the reason you are selling is due to certain types of unexpected financial hardships or other life circumstances that create a hardship.  These are listed in IRS publication 523 beginning on page 6.

https://www.irs.gov/forms-pubs/about-publication-523

 

For example, if you lived in the home 18 months (75% of 2 years) and you are selling for an unexpected hardship, you can exclude $187,500 of the gain, which is 75% of the normal exclusion (or $375,000 if married filing jointly). You would pay capital gains tax on the rest of your gain if your gain is more than the exclusion. 

 

If you believe you qualify for a partial exclusion, you don't attach proof with your tax return.  Just claim the partial exclusion but keep proof of the hardship with your other important tax papers for at least 3 years.