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I have owned my home for about a year and a half and I really need to get something bigger. I am positive that we can get more money out of it than what we paid because we have done many improvements. Someone told me that you have to own your home more than two years or have to pay really high taxes on the profit. I have never heard of this and was wondering if anyone knows if it is true or not.

6 Thoughts on Is it true that you have to own your home for more than 2 years or you have to pay high taxes on the profit?
  1. Reply
    Patrick W
    November 28, 2012 at 4:09 pm


  2. Reply
    November 28, 2012 at 4:24 pm

    PLEASE don’t presume you can sell your home TODAY for
    more than you paid; you might be lucky to get 80% OF WHAT you

    YOUR friend is talking about capital gains. Two years means nothing.
    IF you gain profits you have a GROSS OBLIGATION but you can
    eliminate it by having other write offs or losses.

  3. Reply
    November 28, 2012 at 5:09 pm

    If you sell it and have not lived in it for 2 out of the last 5 years, then yes you can be taxed on the profits.

    If you hold it for more than 2 years and then take your profit and put it into another home, there will not be a gain.

    Also, for a single person the first $ 250,000 of profit is not taxed, IF you are there for 2 years or more.

    And don’t count on increased equity from your improvements. I don’t mean to rain on your parade, but you bought when the market was at its highest and now it is not.

    Have other comparable homes in your neighborhood sold for what you think your house is worth? Have they sold in the past 6 months? Those things are better indicators of value than the amount of money you put into your home.

    Good luck, hope things work out well for you.

  4. Reply
    November 28, 2012 at 5:54 pm

    Yes, true. If you own it for 2 years, live in it for at least 2 years as your main home, and meet a few other rules, then you don’t pay federal capital gains tax on the first $ 250,000 of profit. If you sell before the 2 years, you pay capital gains tax on any profit.

  5. Reply
    November 28, 2012 at 6:03 pm

    If you have lived in your home for 2 of the last 5 years, you get an exemption from paying capital gains tax on the first $ 250K of profit when you sell your primary residence.

  6. Reply
    Matthew M
    November 28, 2012 at 6:39 pm

    The tax you were told about is called Capital Gains Tax. You can exercise a capital gains exemption if you have lived in a house for 2 out of the last 5 years. This exemption can be exercised every two. The exemption is $ 250,000 for and individual and $ 500,000 for a couple. The tax rate is 15% of the profit. So if you paid $ 100,000 and made $ 50,000 in improvements (you must have documentation) you have a base of $ 150,000. If you sell the house for $ 250,000 and pay $ 25,000 in closing costs you net proceeds are $ 225,000. Therefore, the capital gain is $ 225,000 – $ 150,000 = $ 75,000. At 15% tax rate the taxes due on the profit are $ 75,000 * 15% = $ 11,250.

    So, what are the alternatives if you have lived in the house for less than 2 years??? A 1031 Exchange. This program allows you to defer the capital gains tax. This is a little more complicated. When you sell your house make sure you note on the contract that you are doing a 1031 exchange and get a title company that can process the 1031 exchange for you. The cost of the 1031 exchange should be less than $ 1,000 so by using this method you will save over $ 10,000.

    Lastly, if you have already been in the house for 18 months and have not yet listed it for sale, you will probably pass the 2 year mark before the house sells.

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