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What are you taking money out of money market for? Mortgage payments?
If you have used the house as your personal residence for at least 2 out of 5 years and you file married filing jointly, you may qualify for the 500K capital gains exclusion, which means if the house is sold for less than 500K, there are no capital gains to pay.
However, if you use the proceeds from sale and invest in a money market account that generate interest or dividends, the interest and dividends will be taxable.
You would have to keep it in an account that will not generate interest, like regular checking account. If you put it into money market at 5% interest, you are using the money to generate investment, so the 5% will be considered investment income.
If you qualify for the exclusion the proceeds from the sale of the home will not be taxed. However, if you use the money to generate more income, like investing it in money market or stock market buying bonds, mutual funds or stocks, you are generating investment income. And only the ADDITIONAL income is taxed.
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