selling house - time frame to purchase another?

Forum|Forum|2 years ago
June 26, 2024
7 replies
97 views

Is there a timeframe you must buy another house/property after selling one? A penalty or what exactly happens if the above exists but you do not buy within time?

Ask the Experts - Retirement II - June 2024

DoninGA

Level 15

The requirement to purchase another home to defer the capital gains from the prior how sale was removed from the tax code in 1997.

coloradotrackerAuthor

Level 2

Well now, been a long time, thank you

K M W

Employee Tax Expert

For selling a primary residence, there is not a time frame that you must buy another home in order to save money on taxes.

For your primary residence, you would calculate a gain or a loss on the sale of the home. A loss on your primary residence is not tax deductible. Any gain on the sale could be subject to capital gains treatment, unless you meet the rules for a "Section 121 Exclusion", which could exclude up to $250,000 ($500,000 married filing jointly) of gain from being taxed on your federal tax return.

In general, to qualify for the Section 121 exclusion, you must meet the ownership test and the use test. You are eligible for the exclusion if you have owed and used your home as your main home for at lest two years out of the last five years. Note you are not eligible for the exclusion if you excluded the gain from the sale of another home during the two years prior to the sale of this home. Complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two year rule can be found in IRS Publication 523, located at this link: IRS Publication 523: Selling Your Home

So, if it has been your primary residence and you meet the ownership and use tests, you can qualify to exclude a gain up to those amounts from your income - regardless of whether you purchase another home at any point of time or not.

Note, if you were referring to a business or investment real property instead of your primary residence, in that situation there may be tax benefits of deferring a gain if the transaction were structured as a Like Kind Exchange, which does have a specific time frame on identifying and acquiring the other property.

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jaimeeb

Level 2

Is the 2 years calculated using the calendar year? I last lived in my home in May 2025 (and lived there for more than 2 years before that). Does this mean if I sell by May 2028 I will meet the residency requirement?

DoninGA

Level 15

If you sold your primary personal residence and you lived in and owned the home for at least two years in the five year period on the date of sale, you do not have to report the sale if your gains are less then the exclusion amounts of $250,000 if filing Single or $500,000 if filing Married Filing Jointly (and both lived in the home for two years).

So if you lived in the home at any time for a least 730 days in the five year period from the date of the sale.

If sold in May 2028 and lived in home for at least 730 days from May 2023 to May 2028 you're good.