Will I Owe Taxes When I Sell My Home?

If you haven’t lived in your home for more than two years and you are wanting to sell your home, listen up! Because you could end up owing the IRS.

There’s some money on the profit you’ve made off the sale — I’m talking about capital gains tax. The tax that you pay on the profit that you make when you sell something for more than you paid. This is as it pertains to your homestead, your home, your primary residence, where you live.

If you bought something for $200,000 and you sold it for $300,000, so you made a profit of $100,000, that $100,000 is the profit of which you could owe capital gains tax.

The IRS gives homeowners a tax break on this whenever you sell the home after you’ve lived there for two years, BUT if you have lived there for less than two years you could pay capital gains tax. It’s based on the profit.

In the example I gave you, the profit was $100,000. You can reduce that profit by money that you’ve put in, like improvements you’ve done to that property and closing costs.

So in the example where I said that you made a profit of $100,000, let’s just say you did improvement, significant improvements, to that property of about $50,000. So you start at $100,000, you did $50,000 and improvements to that and then you had about $20,000 in qualifying closing costs to reduce. Your profit to $30,000 and that $30,000 is what you would owe taxes on.

‘But what if I have to move because I got a new job?’
Hold on, I’m getting there.
The IRS has exceptions.

One would be if you had a job change — and this can’t be ‘I live here and I took a job 30 minutes away and it’s more convenient for me to be over there..’
No — the IRS says it needs to be over 50 miles.
Like an example would be I live in Houston and I took another job in Dallas. And it’s been less than two years. That would be an exception.

You also could say health related reasons. So if there’s something about that house, like there’s mold or some reason that a doctor tells you you need to get out of there, it’s a health concern. Or if you have to move in order to receive better medical care. Any unforeseen circumstances. Basically something that you didn’t anticipate when you purchased the property.

Couples separating or having children could qualify as an exemption! Like you have a one bedroom condo and you have quadruplets and you need to move to another house. If you had a significant financial hardship or maybe a natural disaster.

Whenever I am showing up to a listing appointment and the seller I asked them, I’m like, how how long have you lived here? They say, ‘I’ve lived here a year.’
Okay..

First off, go talk to your CPA because you could owe capital gains on the profit from the sale of this property. And most sellers are like, huh? what? I also explained this to buyers when we are looking at homes to purchase.

There are limits to this for married couple $500,000, for a single person, $250,000.
I’m not a CPA, so go talk to your CPA!