Posted by Art W on August 15, 2004 at 21:21:49:
If it was your personal residence, you can roll the gain into your next personal residence tax free.
If it was an investment property you can defer the taxes by doing a 1031 exchange. This requires that you purchase another property of equal value to shelter your gain. This is not expensive ($400) to do and allows you 6 months to settle on your next property.
Taxes on house being sold under 1 year ownership - Posted by Marggie
Posted by Marggie on August 12, 2004 at 15:58:16:
I bought a house in September of 2003 and decided to sell it in 2004. What are the tax laws on sales of homes with ownership less than a year. (It was also my first house purchased) Can the profit off of that house be reinvested into a new house without tax penalties?
Taxes on house being sold under 1 year ownership - Posted by Dave T
Posted by Dave T on August 20, 2004 at 23:46:02:
Art’s tax information is a little out of date. Because you say this is your first house, I am assuming that it is your personal residence. The following response is predicated on this assumption.
Before 1997, the tax code included primary residence rollover replacement rules which allowed you to sell your primary residence and then reinvest your profits into a new, more expensive primary residence. If you did this within two years, all capital gains taxes were deferred.
These provisions of the tax code were repealed in 1997 and replaced with the two year rules we have in effect today. In a nutshell, you must both own and occupy your primary residence to exclude the first $250K of profit (per taxpayer) from capital gains taxes. Generally, a sale of your primary residence in one year or less is taxed at your ordinary income tax rate, while a sale in more than one year but less than two years is taxed as a long term capital gain.
Selling your house with less than one year of ownership gets your profits taxed at your ordinary income tax rate. However, unless there has been significant appreciation in your property (or you got a great below market deal), you may not have very much profit to actually tax in less than one year.
Your primary residence is not eligible to participate in a 1031 exchange.
Re: Taxes on house being sold - Posted by Art W
Posted by Art W on August 15, 2004 at 21:25:22:
Just realized that on the personal residence side of the equation you need to have lived there 2 of the last 5 years - look into a 1031 exchange.