• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Capital Gains Question

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

Steve913

Junior Member
Hi, I hope I am posting this in the right location. As I understand it, you can mitigate capital gains impact after selling a home by putting that profit into the purchase of another home. But what about if you buy the new home before you sell the original? We are going to be leaving California and going to Texas. Because of our personal situation, we need to purchase a new home in Texas before we can sell our place in California. Does anyone know how this situation will apply to the capital gains laws?
If I did not include enough detail or more info is needed, please let me know.

Thank you!
 


LdiJ

Senior Member
Hi, I hope I am posting this in the right location. As I understand it, you can mitigate capital gains impact after selling a home by putting that profit into the purchase of another home. But what about if you buy the new home before you sell the original? We are going to be leaving California and going to Texas. Because of our personal situation, we need to purchase a new home in Texas before we can sell our place in California. Does anyone know how this situation will apply to the capital gains laws?
If I did not include enough detail or more info is needed, please let me know.

Thank you!
If you are talking about your primary residence, you are operating under laws that changed quite a few years ago. The rule now for personal residences is that as long as you have lived in the home at least 2 out of the last 5 years you can exclude up to 250k of capital gains for a single owner (or 500k for a married couple). You have to report the sale on your income taxes, but the gains are excluded. (ie you pay no capital gains tax).
 

Steve913

Junior Member
If you are talking about your primary residence, you are operating under laws that changed quite a few years ago. The rule now for personal residences is that as long as you have lived in the home at least 2 out of the last 5 years you can exclude up to 250k of capital gains for a single owner (or 500k for a married couple). You have to report the sale on your income taxes, but the gains are excluded. (ie you pay no capital gains tax).
Thank you for your response. Yes, it is our primary residence and yes we have been there for that long. My wife and I file jointly, so we fall under the 500k exclusion. There is a possibility that we could make more than 500k profit on the sale and that's why I was asking. I may be misinformed, but I had been told that if we turned around and purchased another home after the sale that new purchase price would come off the gains of the sale to bring us under 500k gains exclusion limit. I hope that makes sense. So I guess that turns it into 2 questions I have:

1. Does the purchase price of a new home 'count against' the gains from the sale of prior primary residence?

and if so -

2. Do you have to sell first and then buy, specifically in that order?

Obviously I am out of my element here, so I am doing the best I can to explain the little, and perhaps very wrong, information
Thank you
 

anteater

Senior Member
I may be misinformed, but I had been told that if we turned around and purchased another home after the sale that new purchase price would come off the gains of the sale to bring us under 500k gains exclusion limit.
That provision went bye-bye in 1997 or 1998. Replaced by the exclusion from capital gains that LDiJ explained.
 

FlyingRon

Senior Member
As you've been told, the "rollover replacement rule" that applied to trading up homes went away in 1997, replaced by the new $250/500K exclusion procedure.
The only other "swap" is the 1031 exchanges, but that only applies to business / investment properties, not to your personal residence.

Make sure you compute your basis right. The basis includes not just what you paid for the house but any capital improvements (but not ordinary repairs) done to the house.
Did you put on a deck? Upgrade the kitchen? Install a pool etc.... those are capital improvements and can be added to the basis, decreasing the gain.
Don't forget your sales costs also don't count in computing the capital gain. Your real estate commission and any money you spent getting the house ready market (new paint, landscaping) can be taken off.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top