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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 52714
Experience:  29 years of experience as a tax, real estate, and business attorney.
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We are selling our house after owning it for 22 months. Frankly

Customer Question

We are selling our house after owning it for 22 months. Frankly we just can't afford it anymore. We will make a small profit of about 10K. Will we have to pay taxes on this and if so, how much?
Submitted: 3 years ago.
Category: Tax
Expert:  Richard replied 3 years ago.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good evening. The key is whether you meet the ownership and use tests under the code to qualify for the $250,000 ($500,000 if married) exclusion from capital gain from the sale of your principal residence (gain being the sale price less your basis). Since it was your principal residence, you satisfy the use test, but in order to qualify for the use test, you must have lived there for at least 2 years. Even though you have not lived there for 2 two years, you may still qualify for a reduced exclusion if the sale of your main home was due to one of the following reasons: 1) A change in place of employment; 2) Health; 3) Unforeseen circumstances.

Pursuant to IRS Publication 523: The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying that home. You are not considered to have an unforeseen circumstance if the primary reason you sold your home was that you preferred to get a different home or because your finances improved. The IRS has set forth specific event safe harbors. Unforeseen circumstances are considered to be the reason for selling your home if any of the following events occurred while you owned and used the property as your main home.
An involuntary conversion of your home, such as when your home is destroyed or condemned.

Natural or man-made disasters or acts of war or terrorism resulting in a casualty to your home, whether or not your loss is deductible.

In the case of qualified individuals (listed earlier under Qualified individual ):


Unemployment (if the individual is eligible for unemployment compensation),

A change in employment or self-employment status that results in the individual's inability to pay reasonable basic living expenses (listed under Reasonable basic living expenses , below) for his or her household,

Divorce or legal separation under a decree of divorce or separate maintenance, or

Multiple births resulting from the same pregnancy.

You can see a full discussion of this at:

With regard to any gain you do have, it will be long term capital gain. As such, it will be taxed at the following applicable rate: i) any long-term capital gains that fall in the 15% tax bracket or below will not be taxed; ii) long-term capital gains that fall in the 25%-35% tax brackets will be taxed at a 15% rate; and iii) long-term capital gains that fall in the new 39.6% tax bracket (which kicks in whenyour taxable income is above $400,000 if single and $450,000 if married filing jointly) will be taxed at a 20% rate.

This is the part of my job I don't like...when the law is not in favor of my customer. I wish I could tell you there would be no long term capital gain tax no matter what, but, I can only provide you information based on the law so that you can act on the best available information to you. ………..I wish I had better news, but can only hope you recognize and understand my predicament and don't shoot the messenger. I'm sorry!

Thank you so much for allowing me to help you with your questions. I have done my best to provide information which will be helpful to you. If I have not fully addressed your questions or if you have any follow up questions, or if I have misinterpreted your questions in any way, please do not rate me yet, but simply ask a follow up question without rating so I can provide you with a fully satisfactory answer. If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service with 3, 4, or 5 faces/stars so I can receive credit for helping you today. I thank you in advance for taking the time to provide me a positive rating!
Customer: replied 3 years ago.

thank you, XXXXX XXXXX not sure what long-term capital gain means. How do I know what tax bracket itis in? do you mean our income tax bracket? We have a combined income of about 240K. also, the buyer's mortgage company said that if we haven't owned the home for 2 years, they are required by law to tae 7% off the top? Why is that- will we be double taxed?

Expert:  Richard replied 3 years ago.
You're welcome and thanks for following up. It's long term capital gain rather than ordinary income because your house is a capital asset and you've owned it at least one year. Based on your income, the portion of the gain not excluded under the capital gain exclusion will be taxed at a rate of 15% of the gain. You will not be double-taxed; the portion withheld at closing is just like the withholding from your wages....when you do your return, the tax will be computed and then you get a credit for all tax previously withheld.
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 52714
Experience: 29 years of experience as a tax, real estate, and business attorney.
Richard and other Tax Specialists are ready to help you
Expert:  Richard replied 3 years ago.
Thank you so much for the positive rating! I appreciate having had the opportunity to serve you! If I can be of assistance to you in the future, just look me up and I will be happy to help!

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