Selling house in Indiana. Buying house in Georgia. Can I use equity proceeds from sale to improve purchased home (build fence and deck) without having to pay taxes?

[doug-brunner]

Want to put all proceeds of sale into home improvements without having to pay Indiana or Georgia state taxes on the proceeds of sale (capital gains).

[TomD8 · Accepted solution]

At the state level, you are liable for Indiana capital gains tax unless you meet one of the exceptions described by DoninGA.  If you were a resident of GA at the time of the sale, you would also owe capital gains tax to GA (with the same exceptions), although you'd be able to take a credit on your GA return for the tax paid to IN.

[doug-brunner]

I have lived in the Indiana home for the last 17 years. I will reside in Indiana at the close of sale. If I understand correctly, I will not owe any federal or state (IN or GA) capital gains tax because I meet the federal requirements. Does that sound correct? So I am free to spend the capital gains on down payment and exterior improvements on the new home to be purchased in GA? Come tax day, I'll have zero gains left.

[Critter]

You CANNOT spend down the gains by using the proceeds on the new home ... that is NOT allowed.

[Critter]

What you spend the sale proceeds on is immaterial ... you just cannot use those to reduce the gain calculation on the home that is sold.

[doug-brunner]

Gains will 80,000 period. Spent or not, it falls below the exclusion amounts. So it sounds like the gains will not be taxed. Does everyone agree that makes sense?

[Critter]

yep

[doug-brunner]

Thanks all for the replies.

[DoninGA]

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 and owned the home for two years).  

If you had a gain greater then the exclusion amounts then you would have to report the sale.  Also, if you received a Form 1099-S for the sale either with a gain or a loss, the sale has to be reported.  Any capital gains greater than the exclusion is taxable regardless of how the gains are used.

The requirement to purchase another home at the same or greater price then the sale price of the prior home to defer capital gains was removed from the tax code in 1997.

[doug-brunner]

These are the federal requirements which I understand. I am married and my gains will not exceed $500,000. Especially if I spend all the gains on down payment, deck and fence improvements on the new home.

[DoninGA]

If you have no capital gains to report on your federal tax return, there are no gains to report on a Georgia tax return as Georgia only uses the federal Adjusted Gross Income as the basis of for Georgia income.

[Critter]

You CANNOT spend down the gains by using it on the new home ... that is NOT allowed.

[doug-brunner]

Gains will 80,000 period. Spent or not, it falls below the exclusion amounts. So it sounds like the gains will not be taxed. Does everyone agree that makes sense?

[Critter]

yep.

[doug-brunner]

Thanks all for the replies.