Taxes 18 months after purchase

16 Replies

I'm sure this has been discussed, but I lived-in a house (primary residence) and flipped it, Its been about 15 months and anticipate putting on the market in the next 60 days. Which would put me under the 2 year period to avoid taxes. Ill be making a profit. 

My question simply is, do the taxes get prorated? Do I only pay taxes on 7/24 (7 months under the 24 needed to avoid taxes) - So profit of 100K cap gains tax is 50% - $50K multiplied by 29% (7/24) = $15K in taxes rather than $50K. Am I viewing this correctly. 

Any guidance would be appreciated. 

I guess the title should be 17 months after purchase

There is no proration on the 24 months, except for a few exceptions.....had to move for employment, health, etc.  You'll pay straight cap gains, either 15 or 20%, depending upon upon your income, likely 15% of the gain. Not sure where you got the 50%.

Lol nope. 

Look up your tax rate on your last tax return. 

Google capital gains rates- figure out which one applies to your tax rate.

You will be paying that amount. 

NOW make sure the gain is calculated correctly. Any improvements put into the house for the flip get added to what you paid. 

100k purchase price

50k improvements

150k basis

Sell for 225

= 225- 150= 75000 gain taxed at whatever capital gains rate applies to your normal tax rate.

@Jonathan Sammarco , it doesn't sound like you have put it on the market yet. Why don't you just wait until you pass the 2 year mark and save all that sweet profit for your pockets? You have to live somewhere, right?

50% was for calculations sake. 

So if I live in it for 1 year and 1 day or 1 year and 360 days I pay the same amount in taxes? 

If I were to sell on both those days with the same gain. 

Yes. This is correct. 

It's a cut and dry 2 years out of 5 rule. 

If you're not in it two years- you pay 100% of the tax. 

@Mindy Jensen @Wayne Brooks @Natalie Kolodij

Hey All - Thanks for the responses. Wayne & Natalie - I've been trying to confirm this issue for some time now and I fell across the attached IRS document and if I'm reading it right, page 17 exert b. claims that If i've lived in the house for less than 2 years, I can indeed prorate it by the number of days lived in the house out of the 730 days in a 2 year period. Then multiply that portion by 250K to get an exclusion amount on my taxes...... So I DO think it matters how many days I've been in the house.

Mindy - the reason I want to sell now is that I may only make 200K in profits, 80% of the 250K exclusion limit, SO if I can just make it to the 80% of days 370 * .80 = 296 ------ I would not need to make it the extra 3 months of paying a high mortgage while being able to write off all the gains. 

Ive asked this question to 20 people and nobody has s definitive answer which is bananas to me.

Thanks again, 

I see what you're reading. 

"If you did not meet all the tests in Eligibility Step 1 through Eligibility Step 5, earlier, your home is not eligible for the full maximum exclusion. However, you may still be eligible for partial exclusion if you can show the main reason you sold your home was because of a change in workplace location, for health reasons, or because of an unforeseeable event. "See Do

Only if you meet one of the exemptions listed above do you get a partial exclusion. Unless you had to move due to one of those reasons- it's cut and dry 2 years all or nothing. This isn't one of those "trying to figure out or get a clear answer" areas. It's pretty cut and dry.

@Natalie Kolodij  Page 17 section B of section 5 (determine your exclusion amount) - Take the number of days in the last 5 years that youve used as primary residence, say 657 for example. 

Divide by 730 = .90%

its asks that you use the 90% and multiply by 250 to calculate your non married exclusion limit.

Am i reading this wrong?

@Jonathan Sammarco  

Unfortunately yes you are. It's only if you meet an exception that you get to qualify for a partial. 

See my above post. 

@Jonathan Sammarco .  it's a very convoluted written statute.  But @Natalie Kolodij  and @Wayne Brooks are right on.   You only get to prorate if  you meet one of the very specific exemptions.  @Mindy Jensen has a great idea.  Waiting 6 months no only gets you the full exclusion saving you possibly as much as $63K or $125K (25% of the maximum exemption of $250K in gain or $500Kin gain) in taxes but it also gives you 6 months more of appreciation and has you selling the house in the prime spring selling season.  6 months reaps a mighty potential reward.

@Jonathan Sammarco , if you don't NEED to sell it right now, I don't see any advantages of doing so.

It's not like we live in the south of Florida. You'll be trying to sell your house at the beginning of winter season without the tax benefits.

Even if your home doesn't appreciate and you stay 6 more months, you'll be making a heck of a lot more. Even if you lose some on the sale, you'll most likely still make more money.


It is always best just to contact a local tax professional on the question........ Most of those rules will be in any tax book for the current year if you want to do your own research.  It is all public knowledge.  

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