When are you liable for taxes on the sale of your home? with a twist...?

Question

I am well familiar with the guidelines around when to pay capital gains taxes on the profits from the same of a primary residence. The scenario I have is that I sold a home after living it for over two years. I then took those proceeds to use as a downpayment on another home. However, the home we bought is not for us and we want to move to something smaller -- only six months after we bought it.

We will take the proceeds of the second home and put it into the third home. However, is there any point during this transaction that I would have to pay taxes on the proceeds from the first home because I'm not waiting two years again? Or will I only pay taxes on the proceeds from the second to third house because it was less than 2 years?

Thanks

Answer 1

You lived in the first house as your primary residence for 2 or more years. As a single taxpayer you would not pay tax on the first $250,000 of capital gains. As a married couple you would not pay taxes on the first $500,000 of capital gains.

With regards to the second home: did you make a profit on the sale of the second home and did it serve as your primary residence (but for less than 2 years)? If you made a profit on the second home sale, it would be taxable. The old rule about rolling over the proceeds to put in a different home were revoked a number of years ago.

If your profits on the first home exceeded the limits, you owed taxes on the excess profits in the year of the sale.

Answer 2

No, you'd just have to pay taxes on any gain on the second home. And if you lived in it that short of a time, by the time you paid sales commission you probably wouldn't have a gain or much of one anyway.

You lived in your first home for the required 2 years, so you don't pay on the gain on that one as long as you met the other requirements.