My husband and I are selling our house and moving to a new house. We have lived in our house for a year and 6 months. I am not sure if we will be taxed on the profit. We are only going to come out with about 3000 dollars after closing cost and the real estate company takes there profit. If we reinvest the profit into the new house doing remodels will we have to pay a penalty? We live in louisiana.
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In the majority of states there is a “2 year rule” and you will have to pay taxes since you sold your house before the 2 year mark.
No, there is no tax penalty, as such
What will happen is that you will not be eligible for the section 121 exemption for homeowners that have lived in the property 24 or more of the last 60 months ($ 250k for individuals, $ 500k for married couples).
You *MAY* be eligible to prorate the section 121 exemption but talk to your tax preparer for conditions (things like employer transfer, etcetera)
Since you kept it over 1 year, the tax, if present, should only be Long Term Capital Gains on the gross sales price, minus costs to sell, minus amount spent on improvements, minus the amount you paid, minus costs to purchase, minus unamortized loan costs. Doesn’t sound like that’s going to be very much money.
I’m surprised you’ll end up with any profit after the collapse in the market. Be happy about that! If you roll your money into a new house, you may be able to avoid tax penalties. But talk to a lawyer… NOT Yahoo! Answers.
You won’t owe penalties, as long as the tax on the profit is paid during the year the property was sold. In essence, it sounds like you would owe about $ 1,200 ($ 3000 profit * 40% capital gains tax rate) in addition to your normal income taxes.
Because you are planning to not reside in this property for 2 of the last 5 years, the profit from the sale will be taxable. This could be a killer, and be a lot more money in taxes if you previously took funds out of the home via second mortgage or refinancing with cash out.
Consult a CPA within your local community…