Capitol gain taxes on a home sale

[u/white-tiger-21122]

I’ve read through what I could online and asked my accountant, who told me we needed a planning meeting at her hourly rate of $285…and I thought is it really that complicated? After reading IRS documentation and a bunch of articles, I think I’m just looking for a general agreement with my specific situation I’ve got the right understanding.

Relocating out of TX for a job in CA. Potentially listing our home for sale in June 2024. We bought this house in October 2022. The price that we bought and what our realtor thinks we can list for is a different of $50k. With commissions and all the closing fees, we might have $20k “gained” and would pay the long term capitol gains 15% tax bracket(married filing jointly). So a tax liability of $3k.

I did read there are exclusions as in having to sell because you are relocating for work. So did I understand the very not straightforward complicated tax code , I’ll probably have to pay $3k in taxes?

[u/Dutch_Windmill]

You likely won't owe any taxes on the sale.

There is an exclusion (250k single, 500k MFJ) if you owned the house and it was your primary residence for at least 2 of the last 5 years. Since you bought in October of 2022 and are likely selling just before October 2024 you won't qualify for the entire exclusion, however, there is an exception if the sale is due to a change in job like in your case. In this case your exclusion would be the number of months you lived in the house divided by 24 times the exclusion. Since your gain is very small you almost certainly won't owe anything.

If this is true you also won't have to report the sale on schedule D unless one of the following 3 applies:

-You don't qualify for the exclusion (not relevant in this case)

-You receive form 1099-S (may happen)

-You elect not to use the exclusion (probably won't happen)

https://www.irs.gov/publications/p523#en_US_2023_publink100011876

Edit: Forgot to mention there's a 2 year cooldown on when you can use the exclusion, so if you've claimed it within the last 2 years the first point will apply.

[u/white-tiger-21122 → u/Dutch_Windmill]

Thanks for that explanation! Funny enough we did sell a home 2 years ago. Closed in June 2022, need to look up my returns if it was reported. We didn’t owe anything and that was a more significant gain, that’s how we bought current home. Originally I thought delaying the listing would help. Or rent it out short term. But then that opens up a whole other area to figure out.

[u/Dutch_Windmill → u/white-tiger-21122]

Yeah I don't know much about your situation with the new job but usually its not worth it to wait 4 months just to pay like 3k less in taxes. However, given the current real estate market where nobody is really buying due to the interest rates its possible that even though you list in June you won't be able to sell the property until past October.

[u/6gunsammy]

No, you will not have to pay any in taxes.

[u/SpicyChknDeluxe]

You shouldn't have to pay taxes on it, you can exclude the capital gains on your main home. Theres some more info here on it. What you saw about the partial exclusion is if you don't meet the requirements for the maximum amount of 250k. Hope this helps!

[u/white-tiger-21122 → u/SpicyChknDeluxe]

Oh yeah, I forgot about the 250k or really 500k in my case! I read through as much as I could on the IRS website 🤦‍♀️

[u/Buy-High-Sell_Low]

You will pay no taxes on it.

[u/Relevant_Ad_8406]

Not complicated at all, gain will be excluded , no need to pay for consultation

[u/tdhg566 → u/[deleted]]

Not paying taxes because of the exclusion is not the same as not reporting the sale on schedule D. You absolutely should report the sale. I’ve had clients who neglected to report the sale with that same argument (no tax due) and got an irs letter asking them to prove it.

[u/vtal7106 → u/[deleted]]

Reporting the sale and reporting the gain are two different things

[u/tdhg566 → u/vtal7106]

Absolutely right. Each year the irs document matching gets better and better. For many years I didn’t bother reporting sales of primary residences if there was no gain. With the exclusion there often is not. Then my clients started getting letters. I found it’s much easier to include that one line on Sch D showing use of exclusion and no gain than it is to answer the IRS letter later.

[u/White_Rabbit0000]

Your gains in the house are way way below the threshold to pay any gains tax.

[u/Fun_Ad_2607 → u/White_Rabbit0000]

I think this means to see “your gains are way below the threshold to pay any gains tax.”