Vis-a-vis Capital Gains Tax?
Q: Can someone refresh me on what the status of a house sale is these days vis-a-vis capital gains tax?
A: Note, I am not an accountant, but I believe these statements to be accurate. If you sell a house and made a profit, you are liable for capital gains tax (max of 28% if you owned it for more than a year, normal tax bracket for earnings if short term gain (less than one year)) HOWEVER, if you buy another home within 24 months of the sale that costs more than the home you sold, all capital gains on the sale can be deferred. If you purchase a home within 24 months that costs less than the home sold, you must pay capital gains on the difference between the two homes, or the total profit, whichever is less. For example, buy 1st home for 70K, sell 4 years later for 87K. In first case, buy another home within 24 months (perhaps immediately, which is typical) for 95K. All capital gains is deferred. Second case, do not buy another home at all. Long term capital gains is owed on the 17K profit. Third case, buy another home for 85K within 24 months. Long term capital gains is owed on the 2K difference in price. Fourth case, buy another home for 68K. Long term capital gains tax due on $17K total profit, because difference between homes is more than total capital gains. Note that some things affect this....any improvements made to home, cost of selling, etc. IRS Form 2119 is to be filed and this gives you the specifics of what affects capital gains.
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