Hello again artman,
Years ago under the old tax laws
, it used to be you could exclude paying tax on any gain you had from selling your home by using the money to invest in another property. However, those tax laws changed years ago.
The new rules
allow you to sell your primary home and claim an exclusion of $250,000 (or $500,000 if you are married filing a joint return) from any gain you have on the sale. The IRS considers it to be your primary home as long as you have owned it for at least 2 years and have lived in the home for at least 2 of the last 5 years preceeding the sale.
Your gain is figured by taking the selling price less your basis, less any fees you had for selling the home, such as real estate commissions. Your basis is figured by taking your original purchase price plus the cost of improvements you made while you owned the home. Once you figure your gain, you can then exclude either $250,000 or $500,000 depending on your filing status before any excess gain is subject to tax.
If you do still have a gain after applying the credit for the exclusion, then the gain is taxed at long term capital gains tax rates
which is currently capped at 15%. The state of CA would tax the excess gain at normal tax rates, which would be determined by your overall income for the year.
A taxpayer may claim this exclusion only once every two years. So if you purchase another home now and then keep it and live in it for at least two years, then two years from now you could sell the second home and again take this exclusion. But there is no exclusion allowed for reinvesting the money in to another property.
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Thank you artman.