Capital gain tax on selling real estate in 1 year

6 Replies

What is the % of taxes I may be subject to pay on a property I lived in for 366 days then sell at a profit? I'm getting mixed responses on this. A real estate agent told me 25% of the gain. A lady on biggerpockets forum told me 15%.

Originally posted by @Nicole Parnell :

What is the % of taxes I may be subject to pay on a property I lived in for 366 days then sell at a profit? I'm getting mixed responses on this. A real estate agent told me 25% of the gain. A lady on biggerpockets forum told me 15%.

No one can give you % that you will pay. We can tell you that it might be a capital gain taxed at 0, 15 or 20%. 

Or You might not even pay any taxes based on section 121 partial exclusion. 

Few sentences are never enough to provide you any answers.

Need to know your what is your flipping activity consists of. Why did you sell this house? And other detail.



 

Originally posted by @Ashish Acharya :
Originally posted by @Nicole Parnell:

What is the % of taxes I may be subject to pay on a property I lived in for 366 days then sell at a profit? I'm getting mixed responses on this. A real estate agent told me 25% of the gain. A lady on biggerpockets forum told me 15%.

No one can give you % that you will pay. We can tell you that it might be a capital gain taxed at 0, 15 or 20%. 

Or You might not even pay any taxes based on section 121 partial exclusion. 

Few sentences are never enough to provide you any answers.

Need to know your what is your flipping activity consists of. Why did you sell this house? And other detail.

Thanks for your reply. Actually I purchased home for $86k about 7 months. Remodeled for $45k. Real estate agent believes he could put it on market for $172k based on comps. I want to sell it and use profit to pay debt off and buy another flip. I'm currently living in home.  

 

 

Unless you're a high income earner or realized other gains as well, you will probably be surprised how little a $25k ish gain moves your tax needle.  I always am, but we earn much less on paper than most. What gets me is recapturing 10 years + of accumulated depreciation when I sell rentals. 

By the time the realtor and closing costs get done with you, there really isn't much there to tax most likely.  I wouldn't let the tax tail wag the dog on this one, but good to be tax-conscious always. 

@Nicole Parnell

You may be worrying about the wrong thing. Taxes are important, but what is more important is your exit strategy for this property, your business plan and your overall financial plan, including handling your personal debt. 

As far as taxes, the answer depends on too many missing pieces, which is why the guesses you received (25% and 15%) are not very helpful. Your profit will likely (but not necessarily) be taxed as a capital gain. If you hold it for 366 days like you mentioned - then it's long-term capital gain rate, however it's not one rate. It can be anywhere from 0% to 24%. 

You might even qualify for an exclusion, depending on the circumstances. And there could be some ways to plan ahead and minimize or even remove the tax. This is not for an online post, this takes a consultation with a tax pro.

And, like @Steve Vaughan mentioned, the amount of gain subject to tax could be smaller than you expect, and consequently the tax you are facing could be smaller or even zero.

Once again: your plan is more important than your taxes. I would not try to hack it with a little bit of online research. Get professional help, because in this case it could be very well worth it.

Originally posted by @Michael Plaks :

@Nicole Parnell

You may be worrying about the wrong thing. Taxes are important, but what is more important is your exit strategy for this property, your business plan and your overall financial plan, including handling your personal debt. 

As far as taxes, the answer depends on too many missing pieces, which is why the guesses you received (25% and 15%) are not very helpful. Your profit will likely (but not necessarily) be taxed as a capital gain. If you hold it for 366 days like you mentioned - then it's long-term capital gain rate, however it's not one rate. It can be anywhere from 0% to 24%. 

You might even qualify for an exclusion, depending on the circumstances. And there could be some ways to plan ahead and minimize or even remove the tax. This is not for an online post, this takes a consultation with a tax pro.

And, like @Steve Vaughan mentioned, the amount of gain subject to tax could be smaller than you expect, and consequently the tax you are facing could be smaller or even zero.

Once again: your plan is more important than your taxes. I would not try to hack it with a little bit of online research. Get professional help, because in this case it could be very well worth it.

 You know what? You are definitely right. I am worried about the wrong thing. I didn't realize that it's not a clear cut answer. I also didn't realize that it's possible I won't have any taxable gain. So thank you for response! I'm going to get professional help. 

Originally posted by @Steve Vaughan :

Unless you're a high income earner or realized other gains as well, you will probably be surprised how little a $25k ish gain moves your tax needle.  I always am, but we earn much less on paper than most. What gets me is recapturing 10 years + of accumulated depreciation when I sell rentals. 

By the time the realtor and closing costs get done with you, there really isn't much there to tax most likely.  I wouldn't let the tax tail wag the dog on this one, but good to be tax-conscious always. 

 Thanks for your reply; it puts me at ease. I am definitely NOT a high earner, so your right. I should focus on my exit strategy and starting my business on flipping properties. I'll eventually get a CPA and let them sort it all out. I'm a single mom of 3, so after carrying dependants, I'm sure there wouldn't be much of a tax bill.