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Lev, Tax Preparer
Category: Finance
Satisfied Customers: 29558
Experience:  Personal Investment, Tax Preparation
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Tax advisor. I bought the house k and lived in a house as

Customer Question

for Lev, tax advisor. I bought the house for 200 k and lived in a house as primary residence continuously for more than two years. I sold this house to a related person for 400k (and qualified for capital gain excluision). Now six months later I want to
buy this house back for the same or slightly higher amount. Are there any issues in doing this?
Submitted: 1 year ago.
Category: Finance
Expert:  Lev replied 1 year ago.

First of all when the house is sold for 400k - you realize 200k gain.
If you include that gain into your taxable income - there is no issues - and the IRS will be more than happy to accept your taxes on that gain.

When you choose to exclude that gain from your taxable income as that was your primary residence at least two out of last five years before the sale - there might be a question - if that is a true sale transaction?

If yes - that was a true sale transaction - there is no issues.

Later you might decide to purchase the same property again - there is nothing illegal - but you might want to claim section 121 exclusion some time down the road - if yes - the same question might come up - if that was a true sale agreement - or that was a scheme specifically implemented to claim section 121 exclusion on the same property twice?

If any on these sale transaction will be considered as not true sale - potentially the IRS may disallow exclusion.

That might be rare situation - and the possibility that the IRS audits and rejects such exclusion is relatively low - but legally that is possible.

Expert:  Lev replied 1 year ago.

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