Will I need to pay capital gains tax? I am selling my house that I have lived in for 11 months. with gain of 12,530. selling as we found out we are having another child

[washingtoneon]

 I have owned the house for 11 months, we are selling due to a pregnancy (we will need a larger house with more rooms).  All the gains (roughly $12,500) can be rolled into the down payment of the new house if necessary.  From what i have read, since we have lived there for less than 5yrs we will have to pay the tax, but it also looks as if there is some exemptions.  Will having a baby count for an exemption? or is there some other exemption i can look for?

[SweetieJean]

You have a gain of $12,500 after less than a year?  Also, when calculating the gain, you do not get to deduct any mortgage principal payoff.

[rjs · Accepted solution]

The required time for owning and living in the house, in order to avoid tax on the gain, is two years, not five years. You have to have owned and lived in the house for two out of the five years prior to the sale. That's where you saw 5 years. But you don't meet the two-year requirement.

Having one baby is not one of the exceptions. If you have twins (or more) you would be able to avoid tax on part or all of the gain, but the limit would be less than the normal $250,000 or $500,000 limit. If your gain is only $12,530 the entire gain might fall within the reduced limit, but that's only for a multiple birth, not just one baby.

Using the gain for the down payment on a new house does not avoid the tax. What you do with the money from the sale makes no difference.

[SweetieJean]

and 11 months is a Short Term capital gain, so try to stay at least 12 months.

[washingtoneon]

It looks like we would be closing after a year of ownership and would be expected to pay capital gains.  After further research it appears that in my tax bracket the capital gains tax rate is 0% anyway. So I guess I don't need to worry about it either way.

[SweetieJean]

State taxes may be different.

[washingtoneon]

thank you, i didnt consider that.  It appears that you are right, I would still owe the state tax.

[Netta47]

I did not live in house or rent out . It was left to me and my siblings by my father. 

[GeorgeM777]

Because you did not live in the home, this response assumes it was not your primary residence.  Thus, the home you and your siblings inherited appears to be an investment property; and therefore, if you sell the home you will pay a capital gains tax on any profits.  Understanding your basis (or cost) in the home is an important consideration because whether you had a capital gain or capital loss will depend on your basis in the home.  Generally, the basis of a home that is inherited, is the fair market value of the home on the date of the death of the decedent.  Thus, you and your siblings will need to determine the value of your father's home on the date of death.  

You may have seen other posts relating to the capital gain exclusion as it relates to a primary residence.  That capital gain exclusion does not appear to apply to your situation because the home was not your primary residence.  In order to take advantage of the capital gain exclusion, a taxpayer needs to show, among other things, that the home that was sold was a primary residence.