Will I have to pay capital gains tax?

Submitted by SprayBubbly2506 t3_yiflx0 in personalfinance

My wife and I have owned our home since March 2021 and are currently thinking about selling to try to get into something bigger. Since we have owned our home less than 2 years, will we have to pay capital gains tax on the profits? If so, should we just wait 4 months to hit the 2 year mark to sell?

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Werewolfdad t1_iuidbfb wrote

If the sale occurs prior to you owning it for 24 months and you don’t qualify for the partial exclusion, yes, it is possible you’ll owe capital gains taxes

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SprayBubbly2506 OP t1_iuidrld wrote

Thank you! How do you qualify for the partial exclusion?

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Mashtatoes t1_iuif0zc wrote

Work related (moving at least 50 miles for a work related reason), health related (moving because of better health care elsewhere for an ongoing issue), unforeseeable events (divorce or death of spouse, destruction of your house, a few others).

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BringItBoy t1_iuidswl wrote

You can only use the exemption every 2 years so no you will have to wait.

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SprayBubbly2506 OP t1_iuie8qi wrote

is that true even if this is our first home, so we have never used the exemption before?

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BringItBoy t1_iuiem3n wrote

Yeah you need to live there for 2 years before you do. I guess its to tax home flippers and people like that.

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myze551ml t1_iuiee39 wrote

You'd probably be better off waiting the 4 months (or to be more specific - setting the closing date as after the 4 months; using the intervening period to go through the sales process / deciding on your next purchase etc.).

If you sell within the 2 years - you don't qualify for the FULL exclusion upto $250K single / $500k married. You may still be able to claim partial exclusion if you had

a) a work related move

b) a health related move

c) Other unforeseeable factors.

https://www.irs.gov/publications/p523#en_US_2021_publink100073096

See the link above for more details on these criteria for partial exclusion.

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Swindler42 t1_iuj2wcu wrote

Keep in mind that most escrows are 30-60 days. Selling your home could take anywhere from a few days to a few months depending on your home and how high you want to reach on price.

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