Buying the home provides you with a variety of tax breaks. Selling your home means you must anticipate paying taxes on the profit from that sale. But the rules can be a bit complex. For example, that in previous tax years, a tax break has been offered to any homeowner, military or not, who lived in the home for at least two of the five years before the sale.
In these cases, the seller was allowed to exclude $250K for a single filer and $500K for a married couple–that is money exempt from federal taxation if you used your home as the principal residence for two of the five past years. Under the rules governing this set of circumstances, the seller is not permitted to get a capital gains exemption more than once every two years or 24 months.
There is big potential to misunderstand the nature of this taxation–the tax you pay is on the net profit from the sale, not the total amount. If you sell a house for $250,000 and it cost $150,000, the tax you pay would be based on the amount of gain remaining any capital improvements and other expenses have also been factored in.
If you have a gain on the second residence, it will be taxed because the exemption can only be used once in two years and likely did not live in it long enough to qualify regardless.
Mel
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