I bought a house in September 2021 for $425k.

I will have to move before September 2023 due to family issue.

Hypothetically, if I sell for $500k (hopeful thinking) and have lived in the house 20 months, how much would capital gains tax be?

Staying the full 2 years is unfortunately not an option.

JBLHAG03 said:

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I bought a house in September 2021 for $425k.

I will have to move before September 2023 due to family issue.

Hypothetically, if I sell for $500k (hopeful thinking) and have lived in the house 20 months, how much would capital gains tax be?

Staying the full 2 years is unfortunately not an option.

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the difference between your current sales price less all closing costs and the purchase price plus closing costs.

bought $425 closing costs were $3000.

Sold for $500 closing costs 3500

Cap gains on $75,500. so, 15% or 20% of that. so, you're looking at a max of like $15k in taxes.

there is also a 1 time cap gains exemption up $250K or $500k for joint filers. not sure you want to use that here.

Thanks. also saw this online but don't know if true.

c) If you own the house for less than one year, then taxes will be owed on 75 percent of the profit from that sale. If you have owned it for more than one year but less than two years, taxes will be owed on 50 percent of the profit.

JBLHAG03 said:

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Thanks. also saw this online but don't know if true.

c) If you own the house for less than one year, then taxes will be owed on 75 percent of the profit from that sale. If you have owned it for more than one year but less than two years, taxes will be owed on 50 percent of the profit.

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no. it's capital gains just like any stock.

I thought this was in Canada?

There are exceptions to the two year requirement that allow you to use a prorated amount of the exemption. If you are moving for work or health related reasons you may still qualify.

IRS Publication 523

beerag04 said:

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There are exceptions to the two year requirement that allow you to use a prorated amount of the exemption. If you are moving for work or health related reasons you may still qualify.

IRS Publication 523

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The equation is 1/24 x $500K (if married) or $250K (if single). Where you factor in every month you've lived at the house.

So 20/24 x $500K for OP is $416K in profit that can be exempted if you moved for those reasons listed in the link. Sounds like he should be easily covered.

Good luck with the move OP!

beerag04 said:

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There are exceptions to the two year requirement that allow you to use a prorated amount of the exemption. If you are moving for work or health related reasons you may still qualify.

IRS Publication 523

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This is what I will be doing this year. I moved 23 months after buying our home for work. I am eligible for a ~479k exemption based on our filing status which will more than cover our value gain.

Appreciate the help. My ex wife (Aggie '02) passed away, so I need to move into my children's school district (where she lived) before school starts next year.

JBLHAG03 said:

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Appreciate the help. My ex wife (Aggie '02) passed away, so I need to move into my children's school district (where she lived) before school starts next year.

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Unless you're far away, you may want to inquire about your districts' reqs. If you're in the neighboring district, you may be able to get a transfer, even a hardship one if they have it.

Talk to your CPA. There are IRS exes took to the 2 years timeline depending
In circumstances. Your CPA, or a good one if you don't have one will help you.

Bump to thread hijack. Has anyone had experience with capital gains after selling an inherited home? Does the $250/500k policy apply at all, or are you taxed on the difference in value from when you inherited it to when you sold it no matter what?

Some context: we lived there for over 5 years (including over 2 since inheriting it in 2019), and we expect it will sell anywhere from $150-200k over the 2019 value when it was inherited. Would we be taxed on that difference, or would it be tax-free since it's under the normal limit for capital gains?

As I understand it, your basis resets upon inheritance to market value on that date of inheritance. Then you lived there for at least 2 of the last 5 years, so you can exclude $250k of capital gains if single or $500k if married. Double check with your CPA.

Red Pear Realty said:

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As I understand it, your basis resets upon inheritance to market value on that date of inheritance. Then you lived there for at least 2 of the last 5 years, so you can exclude $250k of capital gains if single or $500k if married. Double check with your CPA.

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You're right on this. Tax basis steps up and exclusion applies given you don't have any other disqualification and as long as you meet the residence requirements.

Buck Compton said:

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Red Pear Realty said:

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As I understand it, your basis resets upon inheritance to market value on that date of inheritance. Then you lived there for at least 2 of the last 5 years, so you can exclude $250k of capital gains if single or $500k if married. Double check with your CPA.

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You're right on this. Tax basis steps up and exemption applies. But just so everyone is aware, that's a cumulative lifetime exemption, not every time you sell a home.

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Thanks all. I knew about the step-up (and we are definitely going to consult our CPA during this process). Based on that stepped-up value we are still expecting to sell for $150-200k over the value from 2019. We are definitely hoping to avoid the hit from that, but details online are limited and mostly focus on the same person buying and selling the home.

Buck, the info online I've seen seems to indicate the 250/500k exemption limit can apply more than once but not more than every 2 years. I haven't seen anything mentioning that it's a cumulative lifetime limit, but, based on my experience with tax policies the last few years, I wouldn't be surprised if it wasn't explained well. Our income taxes have grown more complicated over the last few years due to a few different factors, including inheriting assets from a family member that passed, and the information online is often terrible. We have a CPA, but I still like to know what our obligations are on my own.

I didn't know about the cumulative limit. Link?

Red Pear Realty said:

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I didn't know about the cumulative limit. Link?

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You're right. I was thinking of a different exclusion. Edited post.