We bought a home in NJ in 2023 with another couple as our primary residence. If we sell within the first two years, will we owe capital gains tax? Are there ways to avoid it, such as buying another property with the profit? Alternatively, if one couple buys out the other, will there be capital gains tax?
If you sell for more than you paid (regardless of whether you sell your share to the other owners or to a third party) then you have a capital gain.
If you sell for one of the reasons listed in publication 523 on page 6, you may qualify to exclude part of your gain. If not, the gain is fully taxable.
https://www.irs.gov/pub/irs-pdf/p523.pdf
Also, if you sell in less than a year, then any gain that is taxable will be taxed as ordinary income. If you sell after 1 year, any gain that is taxable will be taxed at the lower long term capital gains rate.
Buying another property would be irrelevant. Before 1997 people could avoid capital gains if they purchased another house of equal or higher value with the gain from the sale of their home. That law changed many years ago. Buy another property if you want to, but do not expect to avoid tax by doing so.
Hang in there for another year, you will probably get more money if mortgate rates come down.
If you are forced to move for other reasons, Never Mind.
@LCD1 to be eligible for the capital gains exclusion, the rules are pretty simple.
you must OWN and RESIDE in the home for any 730 days (2 years) of the past 5 years counting back from the sale of the property.
If you are selling for your own convenience, you wouldn't be eligible for any of the few exclusions available.
what would be prompting the sale?