Will the tax implications be different?

Question

I want to buy a new house, but I'm afraid I won't be able to sell my current house before closing. If I use other funds for my down payment, will the tax implications be different on the proceeds from the sale of my house if I'm not using it towards my new house, but rather paying myself back?

Also, assuming my house doesn't sell for awhile, and I'm paying two mortgages and two property taxes, can I take the usual deductions from both places?

I hope my questions are clear.

Answer 1

Your questions are very clear.

There is no "roll over proceeds from one house to the other" rule anymore. Now, there are new rules that you need to know about. As long as you lived in and owned the house for at least 2 years in the last 5 years, you don't have to pay tax on the first $250,000 of gain. If you are married, the tax-free gain is $500,000. You can only take advantage of this "exemption" once in a 2-year period. There is more information that I recommend you read at the attached link.

So, assuming your gain is less than $250,000 and you meet all of the conditions, you will pay no taxes on the sale of your home. While you own both homes, you will be able to write off the interest on both mortgages (you can write off mortgage interest on only two homes) and real estate taxes on all homes you own.

If you end up having to pay taxes on some gain, as long as you owned the house for more than a year, the tax rate is 15% (or 5% if your marginal tax bracket is 10% or 15%). If you owned the house for less than a year, the gain is taxed at your marginal rate.

Hope this helps! :)

Answer 2

TaxMan gave an excellent answer. I just have one clarification. Even when a 'rollover' was required to deffer gains, buying a new house before selling the old one was eligible for 'rollover' treatment. Under current rules, it doesn't matter anyway.