Question

I want to sell my primary residence within the first year. Do I have to pay capital gain? Also, what if purchase the new house first and then sell the primary residence?

Forum|Forum|6 years ago
December 26, 2019
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TurboTax Online

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xmasbaby0

Employee

Buying a new house first is irrelevant.

SALE OF HOUSE

If your gain was more than $250,000 filing Single, or more than $500,000 filing Married Filing Jointly the sale must be reported on your tax return. Whether you re-invested the gain in to another house is irrelevant. If you have a Form 1099-S go to Federal>Wages and Income>Less Common Income>Sale of Home (gain or loss)

If you owned and lived in the home as your primary residence for at least 2 of the last 5 years on the date of the sale, you do not have to report the home sale if the gain is less than $250K filing Single, or less than $500K filing Married Filing Jointly (and you both owned and lived in the home for at least 2 years).

If you are using online TT, you need Premier or Self-Employed software to report the 1099-S
.https://ttlc.intuit.com/questions/1901135-i-sold-my-home-at-a-loss-is-this-deductible

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**

U

udurakovicAuthor

If we sell within the first year I think we could make about $40,000 and we will use this as down payment for another house. The house is too small and we are expecting another baby. So I still have to report $40,000 as income even though it’s less than 500,000 and also it doesn’t mater if we use those proceeds for the new house?

rjs

Employee

@udurakovic wrote:

If we sell within the first year I think we could make about $40,000 and we will use this as down payment for another house. The house is too small and we are expecting another baby. So I still have to report $40,000 as income even though it’s less than 500,000 and also it doesn’t mater if we use those proceeds for the new house?

That's right. Since you are not eligible for the exclusion, you have to report it no matter how much, or how little, the gain is. Even if it's only $20,000 after you add the improvements to the basis, you have to report it.

There used to be a rule that you could defer, but not eliminate, the tax if you used the proceeds to buy a new home. That rule was eliminated from the tax law in 1997. It was replaced by the $250,000/$500,000 exclusion.

@udurakovic wrote:

But if my exclusion is that the house is too small and we expecting a baby so we need a bigger place and I cannot wait for two years.

You can qualify for a partial exclusion if you have a multiple birth - twins or more. A single baby doesn't give you any exclusion. If you do have twins, the birth has to occur while you still own and live in the house.

rjs

Employee

You don't pay capital gain. Capital gain is the profit you make when you sell a capital asset, such as your home. You receive the capital gain, and you pay income tax on it. The amount of tax depends on several factors.

If you sell your primary residence after owning it for less than a year, you will have to pay tax on the entire gain (profit). You will not qualify for the exclusion of gain from the sale of a primary residence. Since you owned it for less than a year, it will be a short-term capital gain. Short-term capital gains are taxed at the same rate as ordinary income, such as wages.

Since you do not qualify for the exclusion of gain, you have to report the sale on your tax return no matter how much the gain is, even if it's less than $250,000. (If you sell at a loss, and you do not get a Form 1099-S for the sale, you do not have to report the sale. You cannot claim a loss on your personal residence.)

It makes no difference whether you buy a new home before or after the sale.

U

udurakovicAuthor

But if my exclusion is that the house is too small and we expecting a baby so we need a bigger place and I cannot wait for two years. Estimated profits are $40,000. Also, if we do need to pay taxes can I deduct anything that we did in the house? We invested about $20,000. Outdated pretty much everything.

DoninGA

Employee

@udurakovic wrote:

But if my exclusion is that the house is too small and we expecting a baby so we need a bigger place and I cannot wait for two years. Estimated profits are $40,000. Also, if we do need to pay taxes can I deduct anything that we did in the house? We invested about $20,000. Outdated pretty much everything.

You can add the cost of any improvements made to the home to the Adjusted Basis.

Gain or Loss equals Sales Price minus Sales Expenses minus Adjusted Basis (Purchase Price plus cost of improvements)