Short Term Capital Gains
Hello BP Community. I’m kind of in a weird scenario here and I’m looking for a little direction.
Six months ago my wife kids and I moved out of our owner occupied duplex and purchased our second property single family “forever home”. As it turned out, things just weren’t going as we planned at the new place and we decided to jump ship and sell the place to save face. In the meantime while living here, we fixed a ton of issues, remodeled the bathrooms prior to listing our place last weekend.
we accepted a very generous offer that we will come out ahead on.
That being said, I know short term capital gains taxes are in play, and I’m wondering how I can reduce these taxes as much as possible (legitimately). Given we purchased the home 6 months ago, is the down payment in play as an expense? How about putting the money from the sale into my duplex that were moving back to? If there are any words of wisdom or advice you guys would have for me to take the smallest hit on these short term gains, please respond here or feel free to DM me to talk more about your experience!
Thank you all for your help.
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#1 Tax, SDIRAs & Cost Segregation Contributor
- Tax Accountant / Enrolled Agent
- Houston, TX
Your duplex is a separate discussion, so let's ignore it here. With your current residence, there're two issues.
1. Correctly calculating capital gain. How you funded this house is irrelevant, including the down payment. The gain would be the difference between the sale price today and the purchase price 6 months ago, minus closing costs on both ends and minus the cost of remodeling in between. Possibly it's not a large number.
2. Need to know the reason you're moving out, i.e. what specifically did not go according to the plan. Depending on the reason, you may qualify for a tax-free gain. For example, if you're moving out due to unforeseen job change or family event.
Quote from @Michael Plaks:Thank you for your response and the clarity on this Michael.
Your duplex is a separate discussion, so let's ignore it here. With your current residence, there're two issues.
1. Correctly calculating capital gain. How you funded this house is irrelevant, including the down payment. The gain would be the difference between the sale price today and the purchase price 6 months ago, minus closing costs on both ends and minus the cost of remodeling in between. Possibly it's not a large number.
2. Need to know the reason you're moving out, i.e. what specifically did not go according to the plan. Depending on the reason, you may qualify for a tax-free gain. For example, if you're moving out due to unforeseen job change or family event.
Knowing that the capital gain is only from purchase price to selling is great to hear. I know once we consider commissions, closing fees and remodel costs, it should definitely bring the taxable amount down by quite a bit.
The reason for moving back has to do with the constant slew of issues we experienced since buying the home (most of which has been resolved now, but mentally a lot of damage was done.)
1. Upon moving in, we found a carpenter and infestation in the bathroom and ants crawled through our house all throughout the winter. This has now been resolved.
2. We discovered we also had a flying squirrel infestation with them living between our walls. We have since removed all of them (caught between 12-15), and closed up all exterior gaps to make sure they don’t have any other entry points.
3. After dealing with the Squirrels we started discovering mice living in the walls as well. We have since killed multiple and haven’t had any activity since.
We also discovered some leaks in the galvanized piping which we have fixed for now.
The totality of everything has made us regretfully decide to sell the property. We’re just sick of it!
