Maybe. When you make a profit on the sale of your primary residence, you have a capital gain that may be taxable. Thankfully, you may be eligible for an exclusion. The qualified exclusion is up to $250,000 for single people and $500,000 for married. It's known as a Section 121 exclusion and it's a wonderful, wonderful thing!
The basic rules are pretty simple. There are some nuances of course for situations like divorce and vague unforeseen circumstances, but no sense mucking up the crystal clear waters with a bunch of IRS fine print. Here are the key takeaways.
You must have owned for two of the last five years
You must have occupied the property as your primary residence for at least two of the last five years.
It's important to note that homeowners who want to lease their property instead of selling, should carefully evaluate the tax ramifications. If they have a profit from the sale, and they move out for more than 3 years, they no longer qualify for the exclusion - yikes! To reclaim a portion of the exclusion, they would have to move back in for at least two years. We don't see homeowners interested in doing that very often unless they are relocating for a short term work opportunity.
The bottom line is before you call a realtor, call a CPA. Or if you want all the answers from one source, call me as I am both. 714 276-7006
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