Do you need to pay Capital Gain tax when you sell your primary residence and lived on in for more than 2 years

Answer 1

The answers get better and better.

First of all you DO NOT need to have lived in the home for the past 2 years and it is possible for you to get most if not all your profits tax free. Before I get into details I want to stress this point that I am in no way shape or form a tax advisor therefore this is not tax advice only my useful information.

Now we got that out of the way here is an article I just wrotte about this, hope you like it.

If you sell, you pay Uncle Sam! Or do you??

The following article is not by any means tax advice, instead it should be taken as an encouragement to potential buyers (move up buyers) and sellers to consult with a qualified tax advisor BEFORE entering into a selling / buying transaction.

Prior to 1997, typical move up buyers (you sell your home to buy another home) could “roll over” accumulated capital gains from the sale onto the newly purchased home. Simply put if a person first bought a house for $50,000 and later sold it for $60,000 and then purchased a new home for $100,000. The capital gains tax on the $10,000 profit from the sale was rolled over into the new house. But in 1997, the rules changed. The “roll over” rule changed and was essentially replaced by exemptions from capital gains tax for the first $250,000 gain for single people and $500,000 for married couples.

Under present rules if a single buyer first purchased a home for $5000,000 and later sold it for $800,000 and purchased a new home for $900,000, the seller would have to pay capital gains tax liability on the amount of gain in excess of $250,000. In our example the seller would pay taxes on $50,000.

A similar exemption applies to married couples but the amount exempt from capital gains tax increases to $500,000.

There are certain rules that determine qualification for the $250,000 or the $500,000 exemption from capital gains tax. For example the property must be a principal residence and the owner/seller must have lived in the property for at least 2 of the last 5 years. Keep in mind that my description of the capital gains tax rules in this article are very simplistic.

Consult with a tax expert to determine your specific situation.

If you are thinking about selling your present home and purchasing another using the net proceeds from the sale as a down payment, be aware that the sale could create a capital gains tax liability. If in fact you do have a liability and have to pay capital gains tax, make sure you know how much and when you must pay it.

If you fail to consider this liability, you could end up receiving some unpleasant surprise, which could cut short your down payment amount.

Given the fast increase in prices, not necessarily this year but the past few years, many homeowners have gained a lot in equity. Therefore, they could potentially obtain a large profit from the sale and a possible tax liability on this profit as well. And this liability could be owed not only to the IRS but also to the Franchise Tax Board.

In conclusion, the net sales proceeds may not be all yours at the end, so you don’t want to over-commit on your next purchase. Do your homework and your math too so you can be prepared for any tax liability you may owe. Like the saying goes “Better safe than sorry”

For more information visit www.irs.gov and look for IRS Pub 523

Answer 2

If you have owned your home for more than a year and sell it at a profit, it is a long-term capital gain. Your tax will either be 5% for taxpayers in the 10-15% tax brackets or 15% for those in the 25% and higher brackets.

Answer 3

to quickly answer, NO.

if you lived in the home as your primary residence for at least 2 of the past 5 years you owned it, then you are excluded from paying capital gains up to $250,000 profit (single) or $500,000 (married).

also remember that any improvements you do to the property, such as adding a swimming pool, guesthouse, etc can be deducted from the profit, since they were improvements to the property, which added to the cost.

as always, consult with your tax preparer or real estate attorney to verify that there are no loopholes, etc that you may not be aware of.

Answer 4

Both of the previous answers are wrong.

If you sell your primary residence (i.e., you have lived in it for the last 2 years), then $250,000 of the gain is excluded from your taxable income (i.e., not taxed).

There are a lot of individual factors that impact this. See my source. It'll explain a lot of them.

Answer 5

No, however some restrictions do apply when it comes to the amount of gains you are claiming as exempt.