Cap gain tax on primary residence if held less than 1 year

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Cap gain tax on primary residence if held less than 1 year

Rob Golob
Investor · Valparaiso, IN · Member since 2015 · 84 posts · 47 votes

Please confirm for me.

First time home purchase for primary residence in August 2020.

Owner thinks its a good time to sell and sit on the sidelines. and will sell now and not roll the gain into another residence.  Will rent.

I believe it is NOT exempt from any Cap Gain (2 of 5 year rule)

Furthermore, if held less than 1 year it will be Short term Cap Gain.

If held over 1 year, Long term Cap Gain.

If held over 2 years (and lived in) Exemption applies.

Yes / no / maybe?

Thanks

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Christopher Smith
Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
5y

Wouldn't selling expenses eat significantly into any short term profits? 

Maybe its the new thing day trading houses. :)

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    5y

    @Rob Golob

    You're correct, but stay away from giving tax advice to the seller, for liability reasons. Tell him to go consult with a CPA. 

    Also, he might be able to qualify for one of the exemptions if he has valid "unforeseen circumstances." Another reason for him to consult with a CPA.

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  • Rob Golob
    OP
    Investor · Valparaiso, IN · Member since 2015 · 84 posts · 47 votes
    5y

    @Michael Plaks

    Thanks for the response.

    Follow up question.  Is the above true if he buys a new residence immediately, within a year, within 2 years?  I believe it is since the 2 of 5 rule needs to be met regardless.

    As a note, I agree on not giving advice to "the seller."  However, I'm not a party to this at all.  This is for my nephew.

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  • Rob Golob
    OP
    Investor · Valparaiso, IN · Member since 2015 · 84 posts · 47 votes
    5y

    ps:  He has no valid unforeseen circumstance.  Just thinks the market will drop.....

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    5y
    Originally posted by @Rob Golob:

    @Michael Plaks

    Follow up question.  Is the above true if he buys a new residence immediately, within a year, within 2 years?  I believe it is since the 2 of 5 rule needs to be met regardless.

    As a note, I agree on not giving advice to "the seller."  However, I'm not a party to this at all.  This is for my nephew.

    Does not matter what he does after the sale. Makes no difference whatsoever. His only way to avoid the tax is to roll his capital gains into an opportunity zone fund. But how much gain are we taking about in under 1 year? 

    Also, does he expect the prices to drop in the near future? His long-term strategy is suspect. Houses are not dogecoins to invest into for a few months and drop.

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  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    5y

    Wouldn't selling expenses eat significantly into any short term profits? 

    Maybe its the new thing day trading houses. :)

    1Reply
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