Is there Cap gains tax due if you sell ur home before two years, but are buying a new home with the proceeds?

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Existing home cost $ 200,000, selling for $ 240,000 18 months later, buying another home for $ 265,000. Do they owe capital gains taxes on the $ 40,000 increase in value? Also, they are taking $ 19,000 from the proceeds of the sale to pay off their car loan, so in essence they are putting $ 21,000 down and financing $ 244,000 – not that that should matter.

5 Comments
  1. Reply
    my2cents
    July 21, 2011 at 3:58 am

    Internal revenue service or your accountant.

  2. Reply
    Judy
    July 21, 2011 at 4:05 am

    Buying another, more expensive home with the proceeds would have allowed you to defer the taxes under the old rules, but those have been gone for years.

    There are exceptions to having to live in the house for two years, but they’re things like a move for a new job or health reasons. If you just decided you wanted to move to a new home, then the gain is taxable. But you do get to subtract expenses like realtor’s commissions, and since you owned it for over a year, the cap gain will be long term with a maximum rate of 15%, so it might not be all that bad.

  3. Reply
    Wayne Z
    July 21, 2011 at 4:11 am

    Assuming they do not qualify for one of the exceptions, yes, they would owe Capital Gains on the profit.

  4. Reply
    ninasgramma
    July 21, 2011 at 5:03 am

    Unless the owners meet one of the exceptions, such as a change in employment, divorce, serious illness, etc., the gain on the home is taxable as long-term capital gains which is up to 15%.

    The gain should be figured with some care, as costs of the original purchase, costs of the sale, and improvements made to the home will have an effect on the amount of the gain. The selling commission alone will cut that gain down a bunch.

    The purchase of another home, or how the gain was spent, do not figure into the tax computation.

  5. Reply
    K M
    July 21, 2011 at 5:15 am

    yes

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