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Question Headline:
What is my capital gains tax liability if I sell two homes to buy one?

Question Body:
My spouse and I plan to sell both our primary residence, which we’ve lived in for 19 years, and a second vacation home, that we’ve only owned for 10 months, to purchase one home that costs about the same as the existing two homes combined. What would our tax liability be with this type of transaction?

Answer:
For a married couple selling primary residence, there is no capital gains taxes for up to $500,000 of profit. This has been the case since 1997 when the Taxpayer Relief Act (TRA) was passed. Example: Bill & Suzie buy a home as primary residence for $500,000, and 5 years later sell the home for $800,000. They have capital gains/profit of $300,000, but their gains are below the $500,000 threshold and therefore do not pay any capital gains taxes.

For a vacation home or second property the capital gains tax liability is different. Typically profit from such real estate sales will be subject to either short-term or long-term capital gains tax. One exception would be if the seller is a “house-flipper by trade”. In that scenario profits from a sale would be treated as ordinary income. Additionally, the length of time an owner has held a second property will factor into the percentage of capital gains tax owed.

 – Wyatt Swartz

 – Contributions by Bryant Goacher

– 6/1/2018