question about capital gains on a home....?

Question

I bought my home last November (2006). Ive now lived in it for 8.5 months and it is up for sale. When it sells, am I going to have to pay capital gains on it at the end of the year? If so, how much are they generally? The house is listed for $115,000 and I owe $87,900 and it is located in Pennsylvania.

I BOUGHT THE HOUSE FOR $89,900

Answer 1

First of all, how much did you buy the house for? If you bought it for $115,000 or higher, and sell it for $115,000 than you have no gain. If you bought it for less than $115,000 than you may or may not have capital gains, as you get to take into account your closing expenses you paid on both buying and selling the house. Since you have owned the house for less than 1 year your capital gain, if any, would be short term capital and would be taxed at your tax bracket. Long-term gains (held for more than 1 year) would be taxed at lower rate, but this isn't the situation in your case. Pennsylvania would also tax your capital gain as short-term as well. And since you have owned and lived in the house for less than 2 years, the exemption on the first $250,000 of gains on the sale of your primary residence doesn't apply in this case either.

PS, redwine would normally be correct, but for the gain exclusion to be applicable in this case you would have had to have lived in the house for at least 2 years before selling it, and you have already stated that this is not the case.

Flamingojohn is also not correct. His answer used to be the rule, but the IRS has changed it, and that is no longer valid at all.

Answer 2

If you own it for one year or less, the gain is taxed as ordinary income.

If you own it for over one year but less than two years, the gain is taxed at the long-term capital gains rate, normally 15% for most taxpayers.

If you own it for over 2 years and live in it as your principal residence for at least 2 full years out of the 5 years immediately prior to the sale you may qualify to exclude part or all of the gain from tax. The exclusion amount is $250k if your filing status is Single and $500k if your filing status is Married Filing Jointly.

The gain depends upon what you paid for it, the value of any improvements, and what you sell it for. Any outstanding loan amounts do not figure into the calculations.

Answer 3

I found this on the IRS website. Hope this helps.


IRS TAX TIP 2007-34

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, the difference between the amounts you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only capital losses on investment property, not personal property.

Here are a few tax facts about capital gains and losses:

Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.


Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.


Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.


The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2006, the maximum capital gains rates are 5%, 15%, 25% or 28%.


If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
For more information about reporting capital gains and losses, get Publication 17, Your Federal Income Tax, and Publication 550, Investment Income and Expenses, available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Answer 4

Bostonian is right, as usual.

The only thing else to mention, is that depending on why you are selling, there might be some way to mitigate your taxes.

I believe there's some method of pro-rating your taxable amount, based on how long you've been in the home, if you are being forced to move due to a job relocation or other such out-of-your-control situation. You might consider consulting a CPA directly for a specific answer to your precise situation.

Otherwise, defer to Bostonian.

Answer 5

Unfortunately you haven't lived in it for two out of the last five years to get the one time exemption so you'll end up paying taxes on your profits after sales costs. Here are some links you need to go see
IRS: Selling your Home Publication: http://www.irs.gov/publications/p523/index.html
Site #2 http://www.irs.gov/publications/p523/ar02.html
IRS: Home Sale Exclusion rules, publication: http://www.irs.gov/newsroom/article/0,,id=105042,00.html
IRS Sale of your home a pamphlet
http://www.irs.gov/taxtopics/tc701.html
Best of luck on your research

Answer 6

Take the money you gained and re invest it in another primary home and you will not have to pay the capital gains on it.

Answer 7

you're suitable, assuming that the capital helpful factors from the sale of your abode does not placed you into the 25% tax bracket. whether it does, the numerous helpful factors ought to be eligible for the 0% fee. for instance, if the 25% bracket began at 40K and you offered the abode for 7K benefit whilst making 35K, 5K of the convenience woud be tax loose.

Answer 8

No, you get a real estate capital gains exemption of between $250k and $500k depending on your filing status, so long as it is your primary residence.