Will I have capital gain tax if I sell primary home for $1.5M and it was purchased for $600,000 if I purchase another home for $1.2M?

[Buckeye198]

Filing jointly I know the $500,000 exclusion will apply but added to the $600,000 that still leaves me $400,000 potential taxible.

[DoninGA · Accepted solution]

Purchasing another home at the same price or higher than the sale price of the original home to defer capital gains taxes was removed from the tax code in 1997.  Gains on the sale greater than the exclusion amount are taxed as long term capital gains.

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).

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.

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

[NCperson]

Capital gains is calulcated:

Sales price less sales related expenses less original purchase price less qualified home improvements over the course of ownership.

then if you qualify, there is a capital gains exclusion of $500,00 (filing jloint)

indeed, the rest is subject to capital gains tax.  Buying another home doesn;t do anything and hasn't since 1997.

Except for deducting your home improvements, yes, you have a capitgal gain of $400,000.  Depending on your other income, the capital gains tax is 15% (could be 20%) plus 3.8% for NIIT.  So about $75,000 of tax plus any state income tax.  

[fanfare]

If you have any losers in your stock portfolio, sell those in the same year as you sell the home.

If you sold in 2022, Never Mind.

@Buckeye198 

[Opus 17]

The gains calculation on the sale is standalone, it doesn't matter what you do with the money next.  It sounds like you have a $900,000 capital gain, of which $400,000 is taxable. 

Note that you can reduce your capital gains by taking into account certain adjustments to the purchase price and closing costs, as well as any permanent improvements you made.  See IRS publication 523 starting on page 8.

https://www.irs.gov/forms-pubs/about-publication-523

Also note that if you do end up with a $400,000 gain, you will need to make an estimated payment to the IRS by the deadline for the tax quarter in which the sale occurs.  The tax system is pay as you go, and you can be hit with an underpayment penalty if you have a lump sum of income and don't make an estimated payment, even if you pay in full when you file. I would pay 20%, if you overpay, the difference will be added back to your refund.  You will likely also need to make an estimated tax payment to your state if you live in a state with income tax.

If the sale occurs in	the estimated tax payment is due
Jan 1-March 31	April 15
April 1-May 31	June 15
June 1-August 31	Sept 15
Sept 1-Dec 31	January 15