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vaglossa
Returning Member

home sale and capitol gains

I need to understand capitol gains liability for sale of a house owned less than 2 years. We purchased a house for primary residence, we've put $100k into repairs/improvements and now 18 months later we've an offer that brings approximately $200k gain after deducting the $100k improvements we've made. The house is in Oregon so will have Fed and state taxe implications. Do we face a significant tax liability if we sell at 18 months ownership and what what is that liability? Is that liability reduced if we hold the sale until after our 2 year ownership date?

7 Replies
Mike9241
Level 15

home sale and capitol gains

why are you selling? 

1)if it's due to a change in place of employment (to qualify for this the new place of employment must be at least 50 miles farther from the taxpayer's old home than the former place of employment was) or

2) health reasons  - must be primary reason  to obtain, provide or facilitate the diagnosis, cure, mitigation or treatment of a disease, illness or injury

3) unforseen circumstances - such as destruction of the home,  divorce or legal separation for the party that must move out, criminal activity in the neighborhood, excessive airport noise and various other items contain in IRS letter rulings 

 

anyway if one of these applies a reduced exclusion is available. its prorated based on the smaller of the time period the homeowner meets the ownership and use requirements or the time period period between the most recent sale of a home where the home sale exclsuion was used. 

 

for spouses, if one of you owned the property for 2 out of 5 years before sale and both occupied the property as your principal residence for two out of 5 years the full exclusion is available  ($500,000). any depreciation taken is not eligible for the exclusion.   

vaglossa
Returning Member

home sale and capitol gains

This answer doesn't address my question. I am asking about what liability I will incur by selling a house I have owned of less than 2 years. No conditions as set out in your first response, just a simple sale. 

Is there a financial benefit for me by holding the property for the full 2 years rather than selling before 2 years of ownership?

RayW7
Expert Alumni

home sale and capitol gains

Mike9241 is correct in his answer and to add additional information to the Home Sale Exclusion.

 

Do I have to pay taxes on the profit I made selling my home?

It depends on how long you owned and lived in the home before the sale and how much profit you made.

  • If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.
  • If you are married and file a joint return, the tax-free amount doubles to $500,000.

The law lets you "exclude" this profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)

  • You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.
  • If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.
vaglossa
Returning Member

home sale and capitol gains

How about if I own the house for less than 2 years. 

DaveF1006
Expert Alumni

home sale and capitol gains

In order to claim the capital gains exclusion, you must meet the ownership and use tests per IRS.gov

 

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

  • Owned the home for at least two years (the ownership test)
  • Lived in the home as your main home for at least two years (the use test)

So if you lived in the house for less than two years, you do not qualify for the exclusion.

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AmeliesUncle
Level 11

home sale and capitol gains


@vaglossa wrote:

No conditions as set out in your first response, just a simple sale. 

 

Is there a financial benefit for me by holding the property for the full 2 years rather than selling before 2 years of ownership?


ROUGHLY $40,000 in Federal taxes (plus State tax) if you sell it before 2 years.

If it was your main home the entire time, $0 in Federal tax if you sell it after 2 years.

If it was NOT your main home, ROUGHLY $40,000 in Federal taxes (plus State tax) if you sell it after 2 years.

 

Again, the $40,000 is just a rough, ballpark number.  There are MANY factors involved, depending on all of your other circumstances.

ColeenD3
Expert Alumni

home sale and capitol gains

You will pay a capital gains tax on the sale. If you want to know how much, you can plug in the numbers in on a practice return. Yes, holding on to the house for two years to exclude the gain is worthwhile.  If you wish to sell now,  you can see if you qualify for a partial exclusion.

 

For information on the partial exclusion, please see this LINK

 

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