I bought a house in Plano last April, but I am likely getting married sometime before April 2023 and would be moving into her house that is bigger. In the event that I sell before April of 2023, what is the deal with capital gains tax? My understanding is I would owe taxes on: Sales Price - Price I bought it at - money I spent in improvements on the house. Is that correct? If I take the equity from this house and roll it into the NEW house by doing a recast on my girlfriend's loan, do I avoid that capital gains tax? Sorry if this is a dumb question, but not really sure what the story is on capital gains in this particular scenario. Thanks.

First off, congrats on getting married!

My wife and I are currently going through the same challenge with capital gains. Your calculation of the tax is correct. I'm not sure about the recast, but I don't believe that would work (happy and hopeful that I'm wrong for your sake....we don't have another loan to recast our earnings into).

The other challenge to capital gains is the home has to be your primary residence for 2 years, so it may just be something you have to stomach and pay if you get married well before April 2023.

You're looking for a Reverse 1031 exchange, but that's only on rentals. Complicated by the fact that she's already bought hers, then you're laying closing costs and pain in the ass on top.

But theoretically, you could do it.

Ok that's what I wondered. Honestly if we get married in the fall or early winter, dealing with the double mortgage or even a short term renter for 6 months might be worth it. Will have to consider it. Just figured it was worth asking

If the gain is significant to you then just use that as your primary residence until about a month before 2 years and then list it and close after 2 years. Just realize it will be your adjusted basis in the house you own. Cost of the house plus closing costs plus improvements to the house, (these are only improvements you have paid for, sweat labor doesn't count. Example, you built a new fence, only cost of your lumber nails cement and tool rental would count)
Then your gain is sales price of the house minus closing costs, which would probably be about 7% (realtor plus about 1% extra closing fees)

So numerical example:
300,000 cost of house
3000 cost to close, title, points etc.
Bathroom redo 10k
Cost basis of house 313k
Sell for 350,000
Realtor and closing costs
24,500 (7%)
Gain would be 325,500-313,000= 12,500
Taxes on the gain would be 12,500*15% = $1,875

Selling within a year would be taxed at ordinary income

https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates

As alluded to above since you are one year from your purchase (since you probably aren't selling within the next few weeks), it will be taxed as a long term capital gain, likely 15% unless you are making serious bank with other endeavors.

What is your expected gain? The higher it is, the more worth it to hold that house to the 2 year mark. If it's 50K or less then it doesn't make a lot of sense to hold onto it for 6 months too long, since you only lose $7.5K to tax in that scenario. Short term renting is not going to be worth the hassle in most cases.

Alternatively, if the gain is $100K or more, it could make a lot more sense to hold it to the 2 year mark and potentially pocket a few thousand.

Unfortunately the house has to be your primary residence for 2 years. So if your gain is big enough that it would be a significant tax hit, you may just have to live in that house with your wife for a few months and then move into her house with the double mortgage.

I think ultimately the breakeven analysis here is:

Capital Gains Tax Amount - Double Mortgage Payment

If that difference is worth it, then hold. If not, then sell.

I have some ideas. DM some info about your house.