As the title suggests, my wife owned a house with quite a bit of equity in it and we are in the process of selling. She lived in the residence since it was built a few years ago and just moved out when we were married this past April. We have not rented the property at all.
So, where does that leave us with taxes on the equity once we sell it? Are we required to report it as capital gains? If there are tax implications, would using the money to pay off a portion of our current mortgage help at all?
As long as she lived in it for at least 2 of the last 5 years as her primary residence, there is not tax on the "profit" at all. She/you can buy another house, live in it 2 years, rinse and repeat.
@Derrick R. Wayne is correct, there is a $250k limit for single and $500k for married
As long as she lived in it two of the last 5 years it will qualify for the Section 121 Exclusion (Home Sale Exclusion) That exemptions 250k of GAIN (amount over purchase price plus improvements) or 500k if you are Married filing jointly and both lived there.
Awesome, thanks much for the replies!
Wanted to clarify as I've heard both. Can you do this capital gains without paying taxes one time? Or can you repeat the process over and over again?
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