I bought a home in January and have run into some personal things that might cause me to have to move. I am in New Hampshire. What are the Capital Gains (or other) tax penalties for selling a house so quickly after purchasing it?
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Whenever you sell any asset, you owe capital gains tax if there is a gain. If you owned the asset 1 year or less, the gain is taxed as ordinary income (generally 22% or higher). If the asset was held more than one year, the gain is taxed as a long term gain at a lower interest rate (generally, 15%).
Special to your personal home, if you own your home and occupy it as your main residence for 2 years, you can exclude the first $250,000 of gain from your income, meaning it is not taxed at all (or $500,000 if married filing a joint return). The tax consequences of selling your home early are that you pay normal capital gains tax and don't get the benefit of the exclusion.
However, if you are selling due to a change of circumstance that creates a hardship to stay in the home, and the change of circumstance was unforeseeable at the time you bought the home, you may qualify for a partial exclusion. This is described on page 6 of publication 523.
https://www.irs.gov/pub/irs-pdf/p523.pdf
There are some "safe harbors" (circumstance that qualify), and also a general category of "hardship". For example, if you sell in September after owning the home for 8 months, and you claim a qualifying hardship, then you get 8/24th of the usual exclusion ($83,333 for single or $166,666 for married filing jointly) and you pay short term capital gains tax on any gain over that exclusion limit. Please review all of publication 523, then feel free to reply with any clarifying questions.
You would not get the favorable long term capital gain tax rates but the short term rate....for assets held one year or less. That's taxed at ordinary income tax rates.
NH does not have income tax. Does that mean there wouldn't be a penalty here?
there is no penalty per se. You simply report the gain on sale and pay ordinary income tax on it (since it was not held for a year).
Whenever you sell any asset, you owe capital gains tax if there is a gain. If you owned the asset 1 year or less, the gain is taxed as ordinary income (generally 22% or higher). If the asset was held more than one year, the gain is taxed as a long term gain at a lower interest rate (generally, 15%).
Special to your personal home, if you own your home and occupy it as your main residence for 2 years, you can exclude the first $250,000 of gain from your income, meaning it is not taxed at all (or $500,000 if married filing a joint return). The tax consequences of selling your home early are that you pay normal capital gains tax and don't get the benefit of the exclusion.
However, if you are selling due to a change of circumstance that creates a hardship to stay in the home, and the change of circumstance was unforeseeable at the time you bought the home, you may qualify for a partial exclusion. This is described on page 6 of publication 523.
https://www.irs.gov/pub/irs-pdf/p523.pdf
There are some "safe harbors" (circumstance that qualify), and also a general category of "hardship". For example, if you sell in September after owning the home for 8 months, and you claim a qualifying hardship, then you get 8/24th of the usual exclusion ($83,333 for single or $166,666 for married filing jointly) and you pay short term capital gains tax on any gain over that exclusion limit. Please review all of publication 523, then feel free to reply with any clarifying questions.
Thank you. Since NH where I live does not have personal income tax, does anybody know if that also applies to capital gains?
@avigo45 wrote:
Thank you. Since NH where I live does not have personal income tax, does anybody know if that also applies to capital gains?
NH does not tax personal income, that includes capital gains. We are talking about Federal capital gains tax rules, which you may owe depending on the circumstances.
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