Primary residence sale within 2 years

[Kaushik Sarkar]

Hi,

I am a single family home investor, however we are looking to sell our primary home in Chicago and moving to Dallas this summer.

We have bought the Chicago home in Nov'22. Would I owe tax on the profit I make on the sale of this primary residence property, since i have lived here less than 2 years?

Is there any guidance on how to save the taxes?

thanks

[Bill B.]

Yes. You will owe 15% federal capital gains on your net profit. (Sales price minus selling costs minus purchase price.) plus maybe 10% in state taxes. 

So you have to decide if it’s worth saving 25% of your gain to stay put 5 months longer. If it’s $50k you pry pay the $12.5k in taxes. If it’s $100k, maybe you stay put and save  $25k ($5k per month). 

[Bruce Lynn]

1.  Are you going to have profit after owning it less than 2years?  Remember your closing cost deductions and resale costs.  

2.  Check with your CPA.  Might be worth keeping it for a couple of extra months to hit the 2 year rule.

[Fulton Abraham Sanchez]

Quote from @Kaushik Sarkar:

Hi,

I am a single family home investor, however we are looking to sell our primary home in Chicago and moving to Dallas this summer.

We have bought the Chicago home in Nov'22. Would I owe tax on the profit I make on the sale of this primary residence property, since i have lived here less than 2 years?

Is there any guidance on how to save the taxes?

thanks

It might be a portion of taxes owed for the profit of the two years. Topic No. 701, Sale of your home | Internal Revenue Service

https://www.irs.gov/taxtopics/tc701

[Diego A.]

The easy way is to wait the 2 years but this is all about cost benefits. How much you will profit from the sales? how much you will spend in Dallas to wait for it (rent)? Can you afford to buy a new house without selling the Chicago home?

[Paige Kehoe]

I'd definitely talk to your CPA to run scenarios, but I believe there are some exceptions to the 2 years if your move is due to an employment change or other extenuating circumstance that causes you to need to move more than 50 miles from your current place of residence.

I feel like tax code is always slightly changing, so I've found running different scenarios with a CPA is the easiest way to get a straight answer.

[John Warren]

@Kaushik Sarkar at this point in the year, you are listing a home that is likely going to sell in August if you are not yet on the market. Is there any way you can push the sale a few months? Listing towards the end of summer has its downsides, but you are so close to the 2 year mark that it may make sense. 

[Devin Powers]

Hi Kaushik, I am a CPA based in Dallas and have transitioned into real estate.  The short answer is yes you will likely trigger a tax consequence for selling your property.  However, the good news is since you've owned the property for over a year it will be considered a long-term capital gain which holds a much lower tax rate than if you owned it for less than a year.  There are a couple of ways to reduce your tax liability if you decide to sell within the 2 year period:

(1) If you've made any capital improvements to the house, you will likely be able to reduce the amount of capital gains tax you will pay on the property.  Make sure to find those receipts and invoices so that you can include those in your tax return.  Common types of renovations that can reduce your tax liability are adding new bedrooms, bathrooms, etc.; remodeling an existing space; replacing or adding AC, flooring, insulation, roofing, etc.  However, minor cosmetic repairs or repairs to personal property cannot be deducted such as paint, replacing broken hardware, fixing leaks or holes, etc.

(2) If you have other types of investments (e.g., stocks or mutual funds) that are operating at a loss, if you liquidate those investments to take a loss, you can use those losses to offset your capital gains.

[Tyler Hodgson]

Hi Kaushik,

Congrats on your upcoming move to Dallas! You won't miss the Chicago winters!

I recommend talking to a CPA who can look into the details of your case and provide tailored advice. They'll help you navigate any potential exceptions and explore other tax-saving strategies that might be available to you. At the surface level, it does appear that you would have to pay capital gains tax on the profit. However, @Bruce Lynn provided a great reminder to remember all of the expenses that could be included in your cost basis; again, a CPA advising you specifically would be the the best bet.

[Basit Siddiqi]

There are a couple of exemptions for those that lived under two years. 

[Engelo Rumora]

Quote from @Tyler Hodgson:

Hi Kaushik,

Congrats on your upcoming move to Dallas! You won't miss the Chicago winters!

I recommend talking to a CPA who can look into the details of your case and provide tailored advice. They'll help you navigate any potential exceptions and explore other tax-saving strategies that might be available to you. At the surface level, it does appear that you would have to pay capital gains tax on the profit. However, @Bruce Lynn provided a great reminder to remember all of the expenses that could be included in your cost basis; again, a CPA advising you specifically would be the the best bet.

Hi Tyler,

I don't know what's bloody worse lol

Lived in Chicago for 2 years and now in Dallas.

The Chicago windy winters or the Dallas humidity and mosquitos lol

I'm still contemplating haha 

[Jonathan Klemm]

HelloOo @Kaushik Sarkar - If you lived in the Chicago home as a primary residence 2 out of the last 5 years you would have to pay capital gains taxes!

Luckily since you lived for more than one year you would NOT pay short term capital gains.

How come you are leaving the windy city?