Do I need to pay any tax from capital gain for selling my house?

Question

I bought it in 2003 and the capital gain is under $250K. Do I have to own it more than 5 years?

Answer 1

By Dian Hymer
The Taxpayer Relief act of 1997 drastically changed the tax laws concerning capital gains on personal residences. Previously, taxpayers who sold their primary residence could defer tax on their gain if they bought another home within 2 years of selling. But the price of the new home had to be at least equal to the price of the home that was sold.

Under the new law, you don't have to buy another home to receive capital gains tax relief. And you only pay tax on gain you realize over $250,000, for a single individual and $500,000, for a married couple.

For example, let's say that you and your wife bought your current home for $300,000 in January, 1997. You sold it for $450,000 in March, 1999. Your $150,000 gain is significantly less than $500,000, so you won't be taxed on the gain.

To qualify for this gain exclusion, the seller must have occupied the property for two of the five years before the sale. There is no limit on how many times you can take the exclusion, but is can only be taken once every two years.

Suppose your employer transfers you to a different state a year and one-half after you buy your home. Will you be disqualified from taking the capital gain exclusion because of your relatively short period of ownership?

Seller Tip: The 1997 tax law didn't clearly spell out how much capital gains tax homeowners owed if they sold before the required two years. A law passed last year clarified the issue. To calculate how much tax you'd owe on your gain, multiply the exclusion amount you'd be entitled to if you owned for two years ($250,000 for singles or $500,000, if married and filing jointly) by your residency period expressed as a fraction of two years.

Let's say you bought a home in San Francisco for $350,000 on June 30, 1997. Your employer transfers you to New York City 18 months later, so you sell your home. You close on the sale on December 30, 1998 and realize a profit of $150,000. You're single so you'd be entitled to a capital gain exclusion of $250,000 if you had resided at the property for two years. You've resided at the property for 3/4 or 75 percent of the statutory time period. To arrive at this fraction, divide 18 months by 24 months (or 1.5 years by 2 years). Seventy-five percent of $250,000 is $187,500. So you will have no capital gain liability on this sale because your $150,000 profit is less than $187,500.

The new tax law is expected to help most home sellers. However, homeowners that have benefited from decades of home price appreciation might have done better under the old tax law. For example, suppose you bought your current home for $100,000 twenty-five years ago. It's worth $750,000 today. If you're single, you'll owe capital gains tax on $400,000 ($650,000 of gain less the $250,000 exclusion). Under the old law you could have deferred the entire gain if you bought another home within 2 years for $750,000 or more.

The new tax law reduced the maximum capital gains rate from 28 to 20 percent. If you acquire a primary residence after December 31, 2000 and hold it for a minimum of five years before selling, the top capital gains rate will be 18 percent.

The Closing: Lower capital gains rates apply to taxpayers in the 15 percent tax bracket.

Copyright 1999-2006 Dian Hymer. Distributed by Inman News Features

Answer 2

No, you just have to own it, and live in it as your main home, for any two years out of the last five. So you should be OK since the gain is under $250K unless you deferred gain from another house in the two-year period ending on the date of the sale.

You no longer have to be a particular age, and aren't restricted to just using it once. Those were the old rules, but were changed several years ago.

Answer 3

the tax programs usually ask you if it was your principal residence and did you buy another home at the time you sold the last one? do you plan to remain in the new home for at least 2 years and did you live in the last one for at least 2 years? i don't believe the limit is 5 years, i believe it's 2. when i work on taxespeople who've sold a home, i haven't had anyone, yet with a capital gains tax. gains have been as high as 300,000, no tax. of course your other income and deduction can play a part in that as well.

Answer 4

You have to live in the home as your primary residence for any 2 of the 5 years immediately prior to the date of sale. You do NOT need to own it for 5 years, only 2 to meet that test. Do note that 2 years means 2 full years. One day short and you don't get the exclusion.

There is no age requirement on this. That was with the old one-time exclusion rule which was dropped over 10 years ago.

Answer 5

There is a 2 year requirement for ownership to claim the exclusion from capital gains. The link below will take you to the IRS site that has an article on this topic.

Answer 6

You don't have to own it for more than 5 years, just have lived in it for 2 of the previous 5 years. If you own it by yourself and the gain is under 250k, then you get your gain free of federal taxes (and I believe state taxes).

State and local transfer taxes and recording fees still apply at settlement.

Answer 7

If you have owned and lived in the house 2 out of the last 5 years, there is no taxable gain; single exclusion <=$250K, married exclusion<=$500K.

Answer 8

You have to live in it 2 out of the last five years to avoid capital gains.

Answer 9

No capital gain is due IF:
1) Primary Residence
2) Lived in it for more than 2 years

the "over 55 exclusion" discussed previously was replaced with these requirements...

Answer 10

If you lived in it for 2 years or more there is no capital gains tax due. If it was rented or been less than 2 years you lived there capital gains tax is due.

Answer 11

I lived in my first house for almost three years and when I sold it I did not mention it to my accountant. About a year later the IRS was sending me nasty, threatening letters. I was forced to pay not only the regular amount of tax for my capital gain but intrest and penalties as well. Talk to your financial advisor or accountant and never assume anything. It may cause you alot of grief.