Selling a home - capital gains

8 Replies

Hello all, has anyone had experience selling a home that you lived in for less than a year and sold due to job relocation? Do you know if you can avoid capital gains at all with this scenario? Or is there any way you can avoid capital gains? I know the two year rule exists but the market is extremely hot and now would make the most sense to sell as opposed to hanging on as rental. Thanks!

@Daniel Molina

Well, even hanging on to it as a rental wouldn't help.  Sec121 exclusion is you have to have lived in it for 2 years of the past 5 years.  Its not a matter of ownership.  I THINK you can get a prorated exclusion for certain circumstances of which I think a job relo counts.  Consult a qualified professional.

Good luck.

@Daniel Molina Just google up”section 121 partial exemption”.  When you have to move for work, you get a partial (or maybe full) exclusion.

Note, it is the Max Exclusion that gets prorated , not the Gain itself.  Quick example, if you are single and lived in the house for 6 months (1/4 of the 2 year requirement) you get to exclude up to 1/4 of $250k ($500k is married/joint return) or $62,, your Full gain could easily be exempt.

Especially after you subtract 6-10% in selling costs. 

You could also rent for 6-12 months in your new job location in case you don’t like it, it goes away, you end up in wrong neighborhood, etc. 

@Bill Brandt

Thanks. If the home has 70k (hypothetically if it sells for 70k over how much is owed) in equity I would assume this is what is profited after everything. 10% in closing costs/agent fees 7k. If the home was less than 1 year occupied than normal income tax rate of 22% (70k x .22 = 15,4k). 15.4 + 7 =22.4k. Ignore purchase price as it didn’t change much from how much is owed. That means profit is (70k - 22.4 = 47.6k). Does that all sound right? Or am I missing something?

@Daniel Molina

It has nothing to do with what is owed...

If you bought it for $200k and sell it for $230k, then your capital gains is roughly $30k regardless of your loans, if any.  (yes there are adjustments for closing costs, etc. but right now they are small especially given your misunderstanding)

@Daniel Molina

The 10% number was a ballpark for realtors/transfer tax/title insurance, etc. It’s based on sales price not profit…

Using  your tax numbers. 

You buy for $200k, sell for $270k and pay the realtors, the state, the title company and everyone else with their hand out $25k, (9%) that leaves you with a net sales price of $245k. So your profit is $245k minus $200k purchase price or $45k. minus any major documented upgrades (new ac, new roof, etc…)

Then you’d pay your tax rate on that $45k. But again, if you can qualify for the % of 2 years you’ve lived there because you’re moving for a job (I don’t know anything about that rule.) you might get to 0% tax with only 6 months of ownership. Worst case at 22% you’re talking 10k in federal taxes. Plus some state taxes if you live in “one of those states…”

I just sold a cabin in MN and after not paying any state income tax in Nevada for 25 years, it hurt to write a $30k check to the federal government but I was expecting that. The $15k to the state of MN actually hurt more. 

@Bill Brandt

It’s in CA so I’m sure there will be taxes. Thanks for the help. It appears less is payed in taxes than I thought since your profit is actually everything after the closing fees are given out.