I moved from Maryland to Pennsylvania in 2016 but did not sell my home in Maryland until January of 2017. The house in Maryland was my primary residence for 22 years. Will I be expected to pay capital gains tax on the profit? If so, to Feds and Maryland? Feds, Md. and Pa.? Hope not.

When I made an appointment yesterday to have my taxes done, the young lady on the phone asked if I bought or sold a home last year. If so, to bring my HUD-1 from the sale. I asked if I was going to be taxed. She wasn't sure. She just makes appointments and is not an accountant.

I don't remember paying tax on home profits on previous homes.

Thanks for any help.

Short answer : no taxes due as long as they are under the IRS limits (depending on your filing status).


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Longer answer:

"Some sellers are surprised by this break, especially if they’ve been in their homes for a while. That’s because before May 7, 1997, the only way you could avoid paying taxes on your home-sale profit was to use the money to buy another, more-expensive house within two years. Sellers age 55 or older had one other option. They could take a once-in-a-lifetime tax exemption of up to $125,000 in profits. And in all instances, there was Form 2119 to fill out to show that you followed the rules.

But when the Taxpayer Relief Act of 1997 became law, the home-sale tax burden eased for millions of residential taxpayers. The rollover or once-in-a-lifetime options were replaced with the current per-sale exclusion amounts."

additionally:

"Another bonus to the changed rules? You don’t have to buy another home with your sale proceeds. You can squander the money any way you like.

Even better, there’s no limit on the number of times you can use the home-sale exemption. In most cases, you can make tax-free profits of $250,000, or $500,000 depending on your filing status, every time you sell a home.

There are a few rules to follow, of course. First, the property you’re selling must be your principal residence. That means you live in it. This tax break doesn’t apply to a house or other property that you have solely for investment purposes. In those cases, the usual capital gains rules apply.

You also must live in that principal residence for two of the five years before you sell it. This is known as the use test. It also means, practically speaking, each sale must be at least two years apart."

https://www.bankrate.com/finan...our-home-sale-1.aspx


https://www.irs.gov/businesses...real-estate-tax-tips

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quote:

Originally posted by Sig209:
You also must live in that principal residence for two of the five years before you sell it. -

Does that mean that the purchase->sale must be at least 5 years apart ?

Thank you Sig209.

quote:

Originally posted by Crom:

quote:

Originally posted by Sig209:
You also must live in that principal residence for two of the five years before you sell it. -

Does that mean that the purchase->sale must be at least 5 years apart ?

According to the bankrate article - you effectively can use this two year tax break every two years.

"You also must live in that principal residence for two of the five years before you sell it. This is known as the use test. It also means, practically speaking, each sale must be at least two years apart.

That still leaves you room to make some money on several properties. You can sell your residence this year, pocket any gain within the tax limits and buy a new residence. Then two years later, you can do the same thing, again and again, every two years.

And you no longer have to worry about that pesky prior-law reporting requirement. When your gain doesn’t exceed the limit, you don’t have to file anything with the IRS."

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Yes, thank you Sig209.

I am 66 years old. The house was my principal residence. I figure the profit would be less than $150,000.

quote:

Originally posted by Sig209:

quote:

Originally posted by Crom:

quote:

Originally posted by Sig209:
You also must live in that principal residence for two of the five years before you sell it. -

Does that mean that the purchase->sale must be at least 5 years apart ?

According to the bankrate article - you effectively can use this two year tax break every two years.

"You also must live in that principal residence for two of the five years before you sell it. This is known as the use test. It also means, practically speaking, each sale must be at least two years apart.

That still leaves you room to make some money on several properties. You can sell your residence this year, pocket any gain within the tax limits and buy a new residence. Then two years later, you can do the same thing, again and again, every two years.

And you no longer have to worry about that pesky prior-law reporting requirement. When your gain doesn’t exceed the limit, you don’t have to file anything with the IRS."

----------------------------------

Then what does "of the five years" have to do with it?

quote:

Originally posted by wbw:
Yes, thank you Sig209.

I am 66 years old. The house was my principal residence. I figure the profit would be less than $150,000.

That's nice to put that $$ in your pocket without having to pay any additional taxes on it!

-----------------------------------

quote:

Originally posted by Sig209:

quote:

Originally posted by wbw:
Yes, thank you Sig209.

I am 66 years old. The house was my principal residence. I figure the profit would be less than $150,000.

That's nice to put that $$ in your pocket without having to pay any additional taxes on it!

-----------------------------------

Yes. Thanks for easing my mind.

quote:

Then what does "of the five years" have to do with it?

Two out of five years.

Live in it for a year. Rent it out 3 years. Live in it again for another year. 2 out of 5.

Live in it 2 years, leave it empty for 3 years. Still 2 out of 5.

Live in it 5 months a year for the past 5 years, spend the other 7 months in your penthouse loft in Dubai. Still more than 2 out of 5.

Live in property A in years 1 and 3, property B in years 2 and 4, property C in year 5. Both property A and B qualify in year 5, but there's a hard limit in taking the exclusion every 24 months, so you can only use it on one of them.

quote:

Originally posted by kx90:

quote:

Originally posted by Sig209:

quote:

Originally posted by Crom:

quote:

Originally posted by Sig209:
You also must live in that principal residence for two of the five years before you sell it. -

Does that mean that the purchase->sale must be at least 5 years apart ?

According to the bankrate article - you effectively can use this two year tax break every two years.

"You also must live in that principal residence for two of the five years before you sell it. This is known as the use test. It also means, practically speaking, each sale must be at least two years apart.

That still leaves you room to make some money on several properties. You can sell your residence this year, pocket any gain within the tax limits and buy a new residence. Then two years later, you can do the same thing, again and again, every two years.

And you no longer have to worry about that pesky prior-law reporting requirement. When your gain doesn’t exceed the limit, you don’t have to file anything with the IRS."

----------------------------------

Then what does "of the five years" have to do with it?

to differentiate homes lived in by the taxpayer as opposed to rental / investment properties which are subject to separate rules.



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