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dasielady | Can I buy a home, live in it for LESS than 2 years, and still avoid capital gains taxes? |
I am buying a home in the next 2 months. However, in 20 months I am planning a move out of state. This is my first home, and I will be selling it and immediately tossing the money into a new home in the new state.
I am somewhat familiar with the capital gains tax rules, but they only say you have to live in the home 2 out of 5 years. What happens if I was a renter and never owned a home, then live in it for 20 months, sell it, and buy a new home right away? Will I owe regular total capital gains taxes, or are there some exclusions that would apply to me?
I would be looking at making about $20K profit in buying this first house and selling it in 20 months.
Thanks!
Additional Details
It looks like I confused some people...
I am presently a renter. I am buying a home because it is in a nicer neighborhood, the mortgage payment is well within my budget (I'm going from paying $700 in rent to paying $900 including taxes on a mortgage) and after my updates to the home are deducted, I expect a NET $20K profit. However, I am planning on a move out of state in about 20 months. I will put the house back on the market about 3 months before I want to move, and if it doesn't sell, oh well. Presuming it does sell, I will be moving out of state and putting the profits into a new primary residence. My concern is if I am treated like a money making machine by the IRS, and taxed left and right just becuase I sell it 4 months prior to the 2 year requisite. I am wondering if it being my FIRST home, and me putting the money directly into my NEXT home helps out and gives me any exclusions.
Hope that is more clear/ |
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cookiesmom
 |
you have to live in it for 2 years......you made a statement though that confuses me.....
What happens if I was a renter and never owned a home, then live in it for 20 months, sell it, and buy a new home right away?.....if you were a renter and never owned a home you cannot sell it....i may have misunderstood you |
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sjoschko
 |
I'll brake this into a couple parts, because you confused the heck out of me.
If you are moving out of state because of a health reason (e.g. cancer treatment is far away, so you're moving to be closer) or for a change of jobs, then you'll qualify for the reduced maximum exclusion. Normally, you can exclude up to $250K of the sale of the your principal residence ($500K if married). If you sell for either a change of employment, a health reason, or a unforseen event, then you can qualify for the reduced exclusion. The reduced exclusion is calculated by taking the number of days lived there in a 5 year period, and dividing by 730 (2 years). So, if you lived there for 20 months (600 days), divided by 730 days, gives you 82%. You get 82% of the max exclusion, or $205K. So if you only make 20K, you'll get to exclude all of it.
The second part is baffling. If you were a renter and never owned a home, how can you sell it if it's not yours? That part makes nooooo sense. Now, if you're referring to you own the home, rent it out for 20 months and then sell it, you'll owe long-term capital gains on the gain of the property. If you rent it out and live in it, you'll have to do a some more math to figure out your exclusion, but it's not that tough (you'd get to exclude some of it and pay cap gain on the other). Also note, the long-term capital gain rate is 15% right now (but it'll probably be different in 2 years if the democrats get their say). |
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Paul Ding
 |
If there is a change in place of employment, you don't have to meet the 2-year rule. However, there's a reduced maximum exclusion.
If you phone the IRS, they will send you "Publication 523" that explains the rules. There's no charge. |
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Craig T
 |
As long as you buy another principal residence, you have nothing to be concerned about. |
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Leo F
 |
I don't think capital gains is going to be a problem because you said you are going to put it back on the market in 16-17 months and you are looking to make $20K in profit. Depending where the prop is located, if you pay $150K for it a $20K profit it would have to appreciate 13% in less than 2 years and the market is not doing that. Remember you also have to pay a Realtor 6-7%. You also didn't say how much you were going to put down, if you are going with 90-100% financing and with closing costs you will be lucky to brake even. |
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chrisvet
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USA, Canada (my country) shoud be exactly the same - so no worries:
Your principal residence (home you buy to live in) will always be exempt from Capital gains tax.
The idea within itself makes sense because upgrading or relocating to a different home is often done by growing families, or people relocating with work. You will not be penalized on any profits from the sale of the first home.
There is however a time limit, in Canada, we can get away with usually a minimum 1.5 years to live there, mainly because small builders are in the business of building a house, living in it for 1.5 years, and selling it for double profit (profit from market appreceation, and profit from building himself for 30% less.)
This deters builders from moving into a new house every 2 months.
So no worries. |
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satarnag
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I wonder, if in your situation, if you are better off renting since the mortgage payments are usually higher than the rental market and most areas are in a downward swing.
I am advising my buyers not to buy if they plan on leaving within 3 years.
Regards |
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john m
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I am calling the IRS.
give me a minute......
meanwhile,They give me the answer to Your question, I will make a coffee. |
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padwinlearner
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Capital gains taxes would have to be paid only if you have a profit from the sale of your home. If you are looking at $20,000 profit, you would first deduct from that figure any expenses incurred in repairs and/or upkeep. So, if you repainted the house and you paid $2,000 to do so, your net capital gains would be figured on $18,000 instead of $20,000. Keep good records and receipts of all repairs, etc. That will help offset any gain. |
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