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Question about capital gains tax on house sale
Posted on 2/12/21 at 3:47 pm
Posted on 2/12/21 at 3:47 pm
So, I have a question. I know you have to live in your primary residence for 2 years before selling to avoid capital gains tax on the profit of the sale.
We have been in our house 6 months and sort of hate the neighborhood.
Lots of HOA issues, people who don't like each other constantly complaining, etc.
If you sell within the 2 year window, what is capital gains tax computed on?
Example, I pay $50K for a lot, sign it over to the builder and pay him $300K to build and he deeds it back to me for the $300K, which is the sale price of record with the PVA.
However, I have $350K in it at that point, then landscaping, built in cabinets added, pool, fence, a few other things and I've spend another $50K.
So I have $350K in land and house, and the additional that I have spent. Is capital gains based upon the $300K sales price from the builder only, or does it take into account what I paid for the land, and does any of the "improvements" count?
If I sold it next month for $400K, will I have capital gains or can I document it away?
We have been in our house 6 months and sort of hate the neighborhood.
Lots of HOA issues, people who don't like each other constantly complaining, etc. If you sell within the 2 year window, what is capital gains tax computed on?
Example, I pay $50K for a lot, sign it over to the builder and pay him $300K to build and he deeds it back to me for the $300K, which is the sale price of record with the PVA.
However, I have $350K in it at that point, then landscaping, built in cabinets added, pool, fence, a few other things and I've spend another $50K.
So I have $350K in land and house, and the additional that I have spent. Is capital gains based upon the $300K sales price from the builder only, or does it take into account what I paid for the land, and does any of the "improvements" count?
If I sold it next month for $400K, will I have capital gains or can I document it away?
5
Posted on 2/12/21 at 4:03 pm to kywildcatfanone
I could be wrong but I believe you have to net a 250K profit on the sale of your primary residence for it to be subject to any capital gains tax.
Posted on 2/12/21 at 4:06 pm to Powerman
I thought that too, I wasn’t aware of any two year window.
Posted on 2/12/21 at 4:17 pm to kywildcatfanone
There is a requirement that you lived in the house 2 of the previous 5 years. If you don't meet that requirement, you might qualify for a partial exclusion if you have to move for work, military, health.
Your basis should include the land, the house, and all improvements
Your basis should include the land, the house, and all improvements
Posted on 2/12/21 at 4:20 pm to kywildcatfanone
Didn’t you just build it or was that another Cat fan?
Posted on 2/12/21 at 4:20 pm to Powerman
I've read this several times, does it not mean I have to live there 2 years before selling it? I won't make $250K or $500K profit in selling it.
There are some requirements that have to be met for you to avoid paying capital gains tax after selling your home.
1. The property has to be your principal residence (you live in it). If it is an investment property, you will have to follow the normal capital gains rules.
2. You have to live in the residence for two of five years before selling it. (This is also a sneaky way of saying you can only sell a home once every two years at the minimum).
The good news is, if your gain does not exceed the limit, you don’t have to file anything with the IRS.
There are some requirements that have to be met for you to avoid paying capital gains tax after selling your home.
1. The property has to be your principal residence (you live in it). If it is an investment property, you will have to follow the normal capital gains rules.
2. You have to live in the residence for two of five years before selling it. (This is also a sneaky way of saying you can only sell a home once every two years at the minimum).
The good news is, if your gain does not exceed the limit, you don’t have to file anything with the IRS.
Posted on 2/12/21 at 4:23 pm to kywildcatfanone
Posted on 2/12/21 at 4:26 pm to jchamil
Thanks. 
It does look like there is a requirement for living there for 2 years. We have lived in our home 6 months. That's why I was asking.
In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.
It does look like there is a requirement for living there for 2 years. We have lived in our home 6 months. That's why I was asking.
In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.
Posted on 2/12/21 at 4:27 pm to Coomdaddy
quote:
Didn’t you just build it or was that another Cat fan?
Probably me, moved in August of 2020.
Posted on 2/12/21 at 4:32 pm to kywildcatfanone
If your land, house, and improvements total $400k and you sell for $400k, you don't have any gain anyway. I wouldn't think your house should have appreciated too much in 6 months anyway unless something great just happened with your local school district or some new employer moved to town
Posted on 2/12/21 at 4:36 pm to kywildcatfanone
Pretty sure their are partial exclusions that you can get a little loose with to exclude some of the gain. Do you prepare your own taxes?
Posted on 2/12/21 at 4:40 pm to kywildcatfanone
I’m in a similar situation. Under two years and closing soon. Luckily, I’m moving back south so I’ll catch a partial exclusion under section that gives you a break if the move is work related.
ETA: google it and NerdWallet had a pretty good summary article pop up as top result and “test” you can do to see if you’d qualify for any exclusions
ETA: google it and NerdWallet had a pretty good summary article pop up as top result and “test” you can do to see if you’d qualify for any exclusions
This post was edited on 2/12/21 at 4:42 pm
Posted on 2/12/21 at 4:41 pm to kywildcatfanone
Given what you have stipulated, your basis is 400K.
Your gain is calculated as
Proceeds less selling costs (such as commission) less basis
If you have a gain after that, look to see if you can meet the partial exclusion rules. Those operate to pro rata reduce the 250K/500K exclusion by the number of months you don't live in the house in the two year window.
So if you are married filing joint, sell after 6 months of living there, and meet the partial rules, you can exclude 125K of gain.
Your gain is calculated as
Proceeds less selling costs (such as commission) less basis
If you have a gain after that, look to see if you can meet the partial exclusion rules. Those operate to pro rata reduce the 250K/500K exclusion by the number of months you don't live in the house in the two year window.
So if you are married filing joint, sell after 6 months of living there, and meet the partial rules, you can exclude 125K of gain.
Posted on 2/12/21 at 4:53 pm to LSUFanHouston
quote:
Given what you have stipulated, your basis is 400K.
Your gain is calculated as
Proceeds less selling costs (such as commission) less basis
If you have a gain after that, look to see if you can meet the partial exclusion rules. Those operate to pro rata reduce the 250K/500K exclusion by the number of months you don't live in the house in the two year window.
So if you are married filing joint, sell after 6 months of living there, and meet the partial rules, you can exclude 125K of gain.
It hasn't been addressed, and correct me if Im wrong, but if the OP sells is it a capital gain if it's less than a year? Unless I'm forgetting something it should be ordinary income no?
Posted on 2/12/21 at 4:55 pm to lighter345
Yes
Posted on 2/12/21 at 5:05 pm to Mingo Was His NameO
quote:
It hasn't been addressed, and correct me if Im wrong, but if the OP sells is it a capital gain if it's less than a year? Unless I'm forgetting something it should be ordinary income no?
If OP doesn't meet the partial exclusion (or exceeds it), then yes, it's a short term capital gain, i.e. taxed at ordinary rates.
This post was edited on 2/12/21 at 5:06 pm
Posted on 2/12/21 at 5:18 pm to kywildcatfanone
Gotcha. This may be the year you should spend $300 for a CPA to help you out and guide you into that partial exclusion.
Posted on 2/12/21 at 5:53 pm to jchamil
quote:
I wouldn't think your house should have appreciated too much in 6 months anyway
I agree, just trying to determine how you count the overall costs and include.
At this point, just recouping my costs would be good. Although I have to find a place to go first. Posted on 2/12/21 at 5:54 pm to LSUFanHouston
quote:
If you have a gain after that, look to see if you can meet the partial exclusion rules. Those operate to pro rata reduce the 250K/500K exclusion by the number of months you don't live in the house in the two year window.
So if you are married filing joint, sell after 6 months of living there, and meet the partial rules, you can exclude 125K of gain.
Ah, okay. Good deal. Thanks for the info.
Posted on 2/12/21 at 5:55 pm to lighter345
quote:
Gotcha. This may be the year you should spend $300 for a CPA to help you out and guide you into that partial exclusion.
Yeah, if I sell this year, so within a year of moving in, I will get a CPA to do my taxes next year.
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