How does capital gains tax work in relation to selling ones house but not reinvesting immediately in another.?

Question

I bought a house over two years ago and live in Louisiana. I'm moving soon and plan on selling my house. I don't plan on buying another one immediately. How long do you have before paying capital gains on the house? Also, if you reinvest the money in another house, do you avoid paying C.G.? Thirdly, How long do you have to buy another house before losing a capital gains exemption (if there is such an animal)?

Answer 1

There is no requirement to replace your home to avoid the CG tax. That program was replaced a decade ago.

Now, as long as you lived in the home as your principal residence for 2 of the 5 years immediately prior to the sale and have not claimed the exclusion in the past 2 years, the gain (up to $250,000 for Single or $500,000 for Married Filing Jointly) is excluded from any tax.

Answer 2

The rule about reinvesting the gain in another house to defer paying taxes has been gone for a number of years. The new rule is much better for most people. If you've owned the house for over two of the five years right before the sale, and lived in it as your main home for two of those same five years, you can exclude up to $250,000 ($500K on a joint return) from paying capital gains tax. It's not just deferred to later like under the new rules - it's excluded totally up to those limits.

Club obi wan, the first responder, is thinking of the old rules - they've been gone for quite a few years.

Answer 3

If you lived in teh house for 2 of the last 5 years, you don't have to pay any capital gains on the first $250/500K that you gain. If you didn't live in the house for 2 years, then you will pay 15% or 10% in capital gains depending on your income. To avoid gains you could use a 1069(?) exchange to move your gains directly into an escrow account and then reinvest them into a like-kind investment within 180 days of the first sale.

Answer 4

I believe there are many cases where you do not have to pay, one - if you move to a home of greater value I believe your exempt. Federally speaking, you are also allowed a one time decuction of capital gains in this situation I believe, you'll need to check with a tax accountant to be sure. THe law was intended for elderly couples downgrading their homes when their kids moved out but there is no stipulation to age at which you can claim this exemption.

You might look at other types of exemptions, if you're maried or have children, you may be able to offer that money to you spouse or kids as a gift to avoid taxes too.

Normally, you'd have to pay the taxes for the year in which you realized the gain.

Answer 5

well you get a 250k tax free on your property if you sell it and only after you have lived there 5 years. a couple gets 500k tax free. anything after the tax free status is taxed as normal wages.