If I sell my house & do not re-invest it by purchasing another house, will I have to pay taxes on the profit?

Question

We are currently in PA, but will soon be relocating. We own a house that we will have owned for 3 years by the time we sell it. Since we will be moving out of state, our thoughts are to rent first for about 6 months to a year before buying...to get used to the area and make sure it is what we really want. My question is, since we are not re-investing our money into another property, will we have to pay taxes on all of our profit from the sale of this house?

Answer 1

I would find a good local realtor in your area before moving and see if there is a way to manage your property as a rental for a while.

You can decide what to do when you've been in your new location for a while.  Your realtor should be able to refer you to a counterpart in the new area.

If you make the transition fairly seamless you shouldn't get hit too hard, but--as I understand it--you will be subject to taxes on the sale if you don't reinvest in another home.

Answer 2

You have a period of time to wait.  It used to be 18 months, now it may be different.

There is also a one-time exclusion.  I wouldn't waste the exclusion if you have only owned the place for three years.

The good news is, in the current market, when you sell it, after commissions, tax stamps, legal fees and other expenses of the sale, you will probably lose money, so you won't have to worry about taxes.

Answer 3

Yes you do.  It is capital gain and it will eat you alive!!! Check with a realtor, maybe they can tell you.

nfd♥

Answer 4

It may attract Capital Gains tax.

Answer 5

The first two answers missed the mark. If you have lived in the house two out of the five years prior to its sale the first $500K in capital gains (if "we" is your husband) are tax free. Unless you have some extraordinary circumstances it seems unlikely you will sell your house at a greater than $500K profit, so no tax worries for you.

Edit:

You did LIVE in the house, right? If it is an investment property the rules are different.

Answer 6

The old tax rule that you could avoid paying capital gains on the sale of your home if you rolled the gain to a new home changed in 1997. That was more than 10 years ago.  (Income averaging went away more than 20 years ago, but I still get asked about that too.)

The $250/$500K exclusion is a MUCH better deal.  If you do not qualify for the exclusion, the gain *is* taxable.

See IRS publication 523.  That publication *does* get updated every year.  (I guess I'm annoyed that at least half the posts have said you can avoid the taxes by reinvesting the gain.  NOT TRUE.  This changed May 7th, 1997.)

Answer 7

yes you have to pay capital gains tax-----but if you invest that money in govt  REC or NHAI BONDS for three years you will have to pay no tax even if you dont invest in property.

Answer 8

Of course you do it is income.