Capital Gain

[Zmsoph14]

I am selling our current home and purchasing another home. Do I still owe on capital gains even I use the equity from our current home to use towards the new one? 

[xmasbaby0]

Using the equity from the old house to purchase the new one has been irrelevant since 1997.

If your gain was more than  $250,000 filing Single, or more than $500,000 filing Married Filing Jointly the sale must be reported on your tax return.  Whether you re-invested the gain in to another house is irrelevant.  If you  have a Form 1099-S go to Federal>Wages and Income>Less Common Income>Sale of Home (gain or loss)

If you owned and lived in the home as your primary residence for at least 2 of the last 5 years on the date of the sale, you do not have to report the home sale if the gain is less than $250K filing Single, or less than $500K filing Married Filing Jointly (and you both owned and lived in the home for at least 2 years).

• If you are using online TT, you need Premium software to report the 1099-S

NOTE:   If you have ever used the home as rental property or claimed a home office, you have more information to enter

[Vanessa A]

Yes.  What you do with the money from the sale of your home has no affect on how it is treated when it comes to capital gains or the capital gains exclusion. 

The capital gains home sale exclusion is based on the below criteria. 

1. Is it your personal residence?  If so, have you lived in it for 2 out of the last 5 years?  How long have you owned the home?  If you owned and lived in the home for 2 out of the last 5 years, then you may qualify for the home sale exclusion which would exclude up to $250k ($500k if married filing jointly) of the sale of your home.  In order to qualify you must not have used the home sale exclusion in the past 2 years. 
2. Regardless of whether or not you qualify for the home sale exclusion, any gain from the sale of a home or personal property is considered a capital gains sale. For this, the rest of your income will play a part in the tax rate. This would be a capital gains sale so  your tax rate would be between 0% and 20%. The capital gains rates are as follows based on income
   • Zero percent rate for the following income
     • $44,625 for single or MFS
     • $59,750 for HOH
     • $89,250 for Married Filing Jointly
   • Fifteen percent for income more than above but less than below
     • $276,900 for MFS
     • $492,300 for Single
     • $523,050 for Head of Household
     • $553,850 for Married Filing Jointly
   • Twenty percent for the amount that your taxable income is over the 15% level. 

Home Improvements and your taxes

If this was the sale of your primary home, then you will enter it under Less Common Income>>Sale of Home.  You will enter it here whether or not you received a 1099-S

If this was a second home, then you will enter it as follows:

• Federal
• Income
• Show More next to Investment Income
• Start next to Stocks, Cryptocurrency, Mutual Funds, Bonds, Other (1099-B) 
• Select Other
• Continue through and select Second Home for the type of investment
• Answer how you obtained the home you sold
• You will need to enter the selling price, dates and the cost basis of the items

[Zmsoph14]

Ok, what if this was a new construction home that we built? I’ve owned the land for 4 years and closed on mortgage up front in 2021. We’ve been in the house for 14 months now and we are leaving out of state for a new job? Does that change anything. Thanks for the help 

[Vanessa A]

The new construction part does not change anything, however, the fact that you have only lived in the home for 14 months does.  TurboTax will ask you additional questions when you answer you did not live in the home for at least 24 months out of the last 5 years.  Owning the property does not count as living in it, so you will only count the 14 months that you actually lived in the home.  If none of the exceptions apply, then you will be subject to full Capital Gains tax on your entire profit from the sale of your home. 

See below for the exceptions to the 2 out of 5 year rule from Pub 523

• A separation or divorce occurred during the ownership of the home. See Separated or divorced taxpayers.
• The death of a spouse occurred during the ownership of the home. See Surviving spouses.
• The sale involved vacant land. See Vacant land next to home.
• You owned a remainder interest, meaning the right to own a home in the future, and you sold that right. See Remainder interest.
• Your previous home was destroyed or condemned. See Home destroyed or condemned—considerations for benefits.
• You were a service member during the ownership of the home. See Service, Intelligence, and Peace Corps personnel.
• You acquired or are relinquishing the home in a like-kind exchange. See Like-kind/1031 exchange.
• You used a portion of the real property, separate from the living space, for business or rental use, and you didn’t use any of the separate portion for residential use for 2 years out of the 5 years leading up to the sale. See Property Used Partly for Business or Rental.
• You or your spouse (or former spouse) used the entire property as a vacation home or rental after 2008. See Business or Rental Use of Home.