Captial Gains Tax on house sell

[Drew33820]

my wife and I are looking to sell our Florida primary residence and relocate to Georgia. We built it in 2020 and owe $155,000, the realtor is saying to list for $1.3 million. After standard deductions of purchase price ($150,000), mortgage ($155,000) and $500,000 tax deduction we could be facing a capital gains tax on $495,000. Is it possible to refinance to pull money out instead of having to pay taxes? On paper that would make it look like we paid the mortgage off instead of pocketing a large chuck. Thanks

[DoninGA]

The mortgage payoff is not a part of the capital gain or capital loss calculation on a personal residence.

Gain or Loss = Sales Price minus Sales Expenses minus Adjusted Basis (Purchase Price plus the cost of improvements prior to the sale)

[xmasbaby0]

The amount owed on your mortgage is irrelevant and what you do with the money from the sale of the house is irrelevant.  

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).

[Drew33820]

Thanks for the reply. So, my idea of refinancing is no good. We have lived in the house for three years since it was built in 2020. I owner built it so there were no payments to a contractor, I'm assuming I need my receipts to prove cost of build for that deduction. So other than the purchase price, build cost (that I can prove), closing cost and our married filing jointly $500,000 there is no other deductions? Does the job relocation exemption help out any? The new jobs would be well over 50 miles from current.

[Opus 17]

Your capital gain is the difference between your cost and your selling proceeds.  

Your adjusted cost basis is what you paid to build the home.  You can include the cost of the land, amounts paid to contractors or for materials, inspections, permits, architect plans  and other required costs.  Allowable adjustments are shown in publication 523 on page 8.  
https://www.irs.gov/publications/p523

You can also adjust the selling price by certain taxes and fees and your real estate commission.  

The difference is your gain.  

[Opus 17]

@Drew33820 

There are some other adjustments to basis as listed in publication 523, but basically, if you sell something for more money than you originally invested, the difference is your taxable capital gain.  You don’t get an adjustment for the value of your labor, and what you do with the gain after the sale has no effect on the tax you pay on the gain.  

The tax advantage for owning a home is that the first $250,000 or $500,000 of gain is non-taxable when you sell your main home, but any other profit is taxable, as is the profit (gain) from the sale of rental property, business property, or a second or vacation home.  

[NCperson]

@Drew33820 as others have stated the mortgage has nothing to do with this.  Why?  because the IRS is looking at the increased value of the ASSET.   the LIABILITIES (the mortgage!) has nothing to do with it.

Don't you have documentation of what you paid the builder?  even cancelled checks, bank account statements, etc. that support your cost to build?  

Moving for a job has no impact on the equation.  If would affect the $500,000 exclusion if you had lived in the home less than 24 months. This is often misunderstood:   moving has no impact on the gain calculation; only the exclusion calculation.  

Real estate has inflated since 2020, but that much??????

[xmasbaby0]

And...there is no federal deduction for moving.  

Per the tax laws that changed for 2018 and beyond, moving expenses are not deductible on a federal return except for certain active duty members of the military.

There are several states that allow a deduction for moving expenses on the state return:  AZ, AR, CA, HI, IA, MA, MN, NJ, NY, PA and VA  You can enter your moving expenses in the federal software and the information will flow to your state return.

[Mike9241]

the job change won't help. it is used where taxpayers don't otherwise qualify for the exclusion. Since you have lived in and owned this property for 3 years you qualify for the full exclusion unless you've used the exclusion on another residence within the last 2 years.