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Sandi Hargrove, SkyHawks
Sandi Hargrove, SkyHawks, Master Tax Advisor, Enrolled Agent
Category: Tax
Satisfied Customers: 1257
Experience:  I am a Master Tax Advisor and Enrolled Agent. I have 40 years experience. Trucking specialist.
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capital gains help

Customer Question

My wife and I bought a house at $400,000 5 years ago and it is
now worth just under $800,000 (we live in it currently). If we
sold it now we would make just shy of $500,000. We are
interested in buying a house at about $1,000,000 now. My
plan is to buy that now but not sell my first house til about 2
years later. My question has to do with capital gains. Would i be
able to take all the gains (which may be over 500,000 by the
time I sell) and put it into paying down the principal of my
second house without paying any capital gains? Would I be
able to use only $300,000 to pay down the principal and keep
any additional for further investment with no capital gain? Is
there any time issue involved in capital gains? If i would still
have to pay capital gains over $500,000, is there any creative
way of taking out equity in the first house now to apply to the
second house so the first house still has room to appreciate in
the next 2 years and we could apply some or all of the capital
into the second house. Any incite would be appreciated.
Thanks,
XXXXX XXXXX [email protected]
Submitted: 11 years ago.
Category: Tax
Expert:  Sandi Hargrove, SkyHawks replied 11 years ago.

Since you and your spouse owned and lived in the home as your primary residence for at least 2 years of the 5 year period prior to the sale, you may be eligible to exclude up to 500000 of the long term capital gain. You will only be taxed on the excess. Only the excess capital gain will be included in your taxable income for computing your tax bracket rate.


The capital gain will be taxed at 5% if you are in the 10%-15% tax bracket or at 15% if you are in any other tax bracket.


The purchase of the new home will have no effect.

Customer: replied 11 years ago.
Reply to Sandi Hargrove, SkyHawks's Post: I guess the intent of my question is to see how I can
avoid paying capital gains beyond $500,000. Is there a
creative way to do this? If I bought a new home and
put the money I made on the first house into it would I
still be liable? If I did the 1031 exchange properties
would that work? Could i take money from the principal
of my first house now so that I owe more.Then i can use
that as a downpayment as well as give me more room
for the house to appreciate in the next 2 years without
going over the $500,000 limit. Is this possible or any
other ideas. I apologize if i sound very ignorant about
all this. I'm just trying to find out all my options within the
rules. Thanks
Expert:  Sandi Hargrove, SkyHawks replied 11 years ago.

Purchase of a new home will not affect the capital gain at all. That rule is no longer in effect.


The exchange will defer the capital gain from business/investment property only if you trade the property for other property of the same type and of equal or higher value. You may not exchange the gain into your personal home. Specific rules must be used with this type of transaction such as use of a qualified intermediary rather than putting the sale funds into your own bank account until you close on the replacement property. There are specific time limitations for each part of the exchange as well(no extensions allowable).


sale price minus original purchase price minus expenses of the sale minus capital improvements while you owned the property = capital gain


Capital improvements are any items that are not repairs or maintenance that increase the value of the home. Many people forget the new roof, remodeling projects(got to improve those closets!), sidewalks, driveways, fencing and landscaping. Review those items while you decide when to sell.

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