Do I have to pay capital gains on the profits for the sale of my primary residence that I lived at for less than two years IF I use the profits towards my next home?

[jameshelie]

I am going to be purchasing a new home with the proceeds from the sale of my previous residence. I have found certain situations online where if you are using the profits to purchase a “like” home you are not required to pay capital gains on the proceeds. Does this apply to my situation?

[tagteam · Accepted solution]

See https://www.irs.gov/taxtopics/tc701

The Taxpayer Relief Act of 1997 eliminated the “roll-over rule” for capital gains on primary home sales which allowed the nonrecognition of gain when the proceeds of a home sale were used to purchase another home.

At this time, there is an exclusion if you meet the tests outlined in the link above (or one of the exceptions).

[NCperson]

if you did not own and live in the house for 2 of the last 5 years, there is capital gains tax on the profit, unless you are eligible for a "special" exclusion (e.g. you had to move for your job), but if you sold for convenience, then there is a tax on the capital gains.  Do note that if you owned the property for at least 12 months, it's subject to long term capital gains (and not short term capital gains). 

[tagteam]

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@jameshelie wrote:
I have found certain situations online where if you are using the profits to purchase a “like” home you are not required to pay capital gains on the proceeds. Does this apply to my situation?

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This does not apply to your situation. Your situation would not involve a "like-kind" exchange (aka Section 1031 exchange).

The scenarios you found online are either referencing the old, outdated, law and rules when proceeds are reinvested in a new primary home or, more likely, when real estate held for investment (i.e., not a primary residence held for personal use) is exchanged for other real estate also to be held for investment purposes.