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Danyael

Sold house, how long before I have to pay taxes on gain?

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Hello,

 

I am self-employed, finally bought my first home.  Put %20 down and paid closing costs up front.  I thought I was going to die in this house (meaning, not going to move anywhere else). However, once I started getting into the rehab and such... I realized I am not moving into this house and I am just fixing it up enough to re-sell it.  Now, I will make a profit off of it, but I am worried that if I have to pay taxes on my capital gain, that will suck all the excess money I get and ruin my chances of buying a better home that I really WILL want to live the rest of my life in.

 

I read somewhere I have 2 years to either re-invest the money I get from selling but other places I have read that I will be penalized.

 

I am not an investor, I barely make $30k year and after deductions my net is around $20k.  I do have excellent credit and around $14k available credit with my social, and about $460k available credit with my EIN. 

 

How long will I have to do something with the money after I pay off 1st mortgage and then pay off credit cards I used to rehab this home without being taxed/penalized?  If I do find another house and use that money for down payment, etc.., is that acceptable?  Will I be taxed?

 

To put my income in perspective... I was turned DOWN for the USDA loan... because I made too little.  😕

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I believe there is a time window for you to put your sale proceeds into another house, it might be as long as a year but don't take that as gospel. Others on here will be along to advise.

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You have to live in the house for 2 of the last 5 years to take advantage of the $250,000 (single) sale exclusion. If your selling the house early you will deduct selling expenses and improvements you made to the house off of any gains. The idea of rolling the profits into a new house went away some years ago when the came up with the $250,000/$500,000 exclusion.

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On 12/10/2018 at 5:57 AM, 8ball said:

You have to live in the house for 2 of the last 5 years to take advantage of the $250,000 (single) sale exclusion. If your selling the house early you will deduct selling expenses and improvements you made to the house off of any gains. The idea of rolling the profits into a new house went away some years ago when the came up with the $250,000/$500,000 exclusion.

^^^ THIS.

 

You don't get to roll the proceeds into a new home any longer and defer taxes due.  They did away with that in 1995-1996 or so when the 250/500 rule first came into play.

 

You can "trade" investment properties into more expensive investment properties via a 1031 exchange but that doesn't work for your primary residence, and you would have had to set that up prior to selling anyways.

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You only pay taxes on the profit. Flipping houses is ordinary income not capital gains making it subject to self employment tax also. You'd still walk away with money but uncle sam gets their cut. Hopefully you kept detailed records of all expenses.

 

If you rent the house out for a year or two you could sell later and pay capital gains. Of which your ordinary income plus the capital gains up to 38k is in the 0% bracket so you'd pay 0% on 8k of it and 15% on the rest at 30k/year regular income. This would also keep you from paying 15.3% in self employment tax.

 

If you move in for 2 years you could avoid taxes completely.

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