If I sell my house after living in it for less than 2 years, is the capital gains tax prorated?

Question

I'm listing my house for sale and, if everything goes to plan, it will sell almost exactly 1.5 years after we bought it. We stand to gain about $50k. Do I owe the capital gains tax on the entire $50k, or is it prorated so I would only owe 1/4 of the calculated tax (1/4 because I lived in the house for 3/4 of the 2 years required to earn the full exemption). Also, I've heard that the tax rate is 15% and 20%, which is it? Thank you in advance.

Answer 1

You will owe a capital gain tax, however if you are compelled to move for work there may be special considerations, see a CPA for advice in that regard. There may be special treatment if moving due to the exercise of Eminent Domain. The tax will not be "prorated". The 15% tax is due if you sell after 12 months, if sooner it is your standard tax rate, say 25%, 33% , etc. because it is treated as ordinary income, not investment.

To take the homestead exemption you must claim the residence for 2 yrs min. and sell within a 5 yr window. You will owe 15% on the gain if not your primary home for the 2 yr period. Costs to buy and sell add to the cost basis, as will any improvements you make like paving the drive way, adding a garage, etc. and thereby reduce your tax liability. If you have sufficient tax deductions, you may also off-set part of the tax by the deductions. Again consult with a CPA for the best direction to take this.

Answer 2

15% Capital gains Tax. i'm notably specific that New Jersey could prefer a bite additionally yet i don't be attentive to how lots. The exclusion on the two 12 months rule is barely prorated in case you have a qualifying condition inclusive of a clean pastime. purely advertising considering you prefer a clean place would not qualify. sooner or later wanting 2 years interior the abode an you are able to owe taxes. sooner or later over 2 years and you do no longer. by the way, the guideline you are able to desire to reinvest in a extra costly abode to evade the taxes went away over 10 years in the past.

Answer 3

You pay taxes on the profit when you receive the profit. The profit will be premised on the difference between basis and sales price less deductible expenses. As to what the IRS says it's best I let you read what they say here is the link from our research department. I can never understand that foreign language.
IRS Home Sale Exclusion rules, publication: http://www.irs.gov/newsroom/article/0,,id=105042,00.html
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