Capital gains tax - house sale?

Question

We bought a house 1 year ago, paid $170,000 for it, spent about $10,000 on improvements and expect to sell it for $200,000. I want to buy a small horse farm about 40 miles from where I am now and go into business for my self - would the profit off the sale from my house be subject to capital gains or do I have to wait until I've lived in the house 2 years? Also if I get my projected price of $200,000, what would I be looking at paying in capital gains if liable? Keep it simple please - I'm blonde and crap with numbers! :-)
Cheers

Cheers guys - great answers - just wanted to make sure that I wasn't going to owe something like $40,000 or something crazy like that. Didn't realize either that it came off after realtor fees etc. Makes me happy!!!!!

Answer 1

Projected price: $200,000
Net after commission: $188,000
Basis of home: $185,000 (add closing costs)
Capital Gain: $3,000

Tax: maximum of $450.

If you are careful to subtract your seller's commission from the sales price, and add your allowable closing costs to the buy price, you can get your gain, and your taxes, down to almost nothing.

Answer 2

You said "we" bought a house. If you or your husband got a job that was more than 50 miles away, you might be able to get a prorated exclusion on the sale that would cover your gain so you would pay no tax. IRS Pub 523 states that if "the new place of employment is at least 50 miles farther from the home you sold than the former place of employment was."

Another reason that you may qualify for a prorated exclusion is if the sale resulted from "unforeseen circumstances." Again, refer to Pub 523 for examples. You may b e able to qualify.

I am sorry it isn't simple but, after all, it is taxes.

Good luck.

Jim Kirby, CPA

Answer 3

If you don't live in it as your main home for two years, yes the gain will be subject to capital gains tax.

You've got $180K in it already, so if you get your asking price your gain would be $20K. But expenses like realtor's commissions can be deducted from that before you figure your tax. Whatever gain is left would be taxed at 5% or 15% depending on your tax bracket.

Answer 4

200,000 sales price - 170,000 cost - 14000 selling expense (6% realtor and 1% closing)-10,000 improvements = $6,000 taxable gain. Plus you should have had some closing costs when you purchased, so I'm guessing that your tax liab would be very low.

Answer 5

You need to live in it for two years, but even if you don't you're still making a profit.

Answer 6

$20,000 * .15 = $3,000 if you own if for over a year. It could even be less if your taxable income is in the 15% tax bracket.