Seller's Tax Question

3 Replies

Good day everyone! 

I am currently in negotiations with a seller.  He asked a tax question that I am not sure how to answer.  He asked how much taxes will he have to pay when he sells his house.  He has lived in the residence for the past five years, but had the deed in his name for only a year.  He is in the 12% tax bracket.  I am reading from tax sites (not the IRS) that he may not have to pay capital gains on some assets because he is within the 10% - 15% tax bracket, but does not specify if a home falls in to this category.  The IRS website does not seem to specify what rules apply in this situation.  Does anyone know if his house would fall in to this category?

@Vangie Moore

There is no way to answer this question other than "possibly no taxes in his tax situation." 

Also, it depends on the reason he is selling. He may be exempt if it is for some unforeseen reason, like a job change, health, divorce etc.

@Michael Plaks   is refering to the 121 partial exclusion.  Is the seller selling because of employment, health, and unforeseen circumstances, and or safe harbors?  Was there a material change in family needs, whether the seller became financially impaired, and whether the circumstances causing the sale were reasonably foreseeable when the taxpayer bought the property?  All this would have to be considered.

Maybe an option to buy in a year would be better for the seller.

A home is a capital asset. Selling a capital asset while you are in the lowest 2 brackets(10% and 12%(new in 2018)) may potentially not face any capital gains tax on the sale of the home.

However, It may be better to qualify for a full 121/partial 121 exclusion if he does qualify.

However, you should be wary of providing tax advice to a seller. It can come to bite you if you are incorrect.

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