Hi, I’m new to investing, and I am currently looking into selling my current house which I have fixed up a lot myself. I think that I can sell it for a 30k profit, but I have only lived in it a year. What is the percentage of capital gains that they will take from this profit???
over a year - i’m not a cpa, but if it’s definitely 30k PROFIT…this is after you’ve deducted all expenses and capital costs…
i think it’s 15%.
if it’s your personal residence, then i’m not sure - could be the same. ask your cpa - mcwagner is good to ask as well.
ok well, just to get a grasp of the whole concept, does the percentage change if I’d had been in the house less than a year? More than two years? Thanks for all the help
Yes, the capital gains tax rate does depend upon the length of ownership.
Own the property one year or less prior to the sale and your profits are taxed at the short term capital gains tax rate which is the same as your ordinary income tax rate.
Own the property as least one year and a day prior to the sale and your profits are taxed at the long term capital gains tax rate. The long term capital gains tax rate is either 5% or 15% depending upon the tax bracket in which the capital gains is earned.
If you have both owned and occupied the property as your primary residence at least two of the five years prior to the sale, the tax code will allow you to exclude the first $250K of profit per taxpayer from capital gains taxes. Note this only applies to your principal residence.
So, in your case, if you wait until you have two years of ownership and occupancy as your primary residence before selling, your capital gain will be tax free.
Ok thank you for all of the insightful responses. I have another question. Of these taxes would any rehab costs be deductible? Thanks
yes.
best to talk with your cpa.
Geez, I go to school for accounting, and they don’t have a class for real estate. I want my money back!!! Haha
Thanks for all of the great responses.
Come to Texas! UT in Austin has great classes on investment finance. They even have a real estate finance center. http://cref.mccombs.utexas.edu/
No, rehab costs are never deductible whether you are talking about your primary residence or an investment property. The rehab cost is added to your cost basis, which eventually reduces your taxable profit when you sell.
Because you are asking about your primary residence, if you wait until you have been in your home at least two years, the sale profit is tax free anyway so the question becomes moot in your case.
So does that mean if you have a house for less than a year and lets say you paid 50k for it and you invest 20k for repairs of your own money. Does that mean if you sell the house for 100k that after the mortgage is paid you recieve proceeds of 50k, that you will have to pay CG of 50k or 30k?
Phil
The initial cost was $50K. The $20K rehab cost is added to the cost basis, making the adjusted basis $70K. Sell for $100K and the sale profit is $30K.
If this property was a rehab-flip, then there is no capital gain. Instead, the profit is ordinary income and taxed at your ordinary income tax rate and self-employment income taxes may also apply.
If this property was a personal residence (first or second home) or an investment use property (rental, for example) then capital gains tax treatment applies to the sale profit.
this is why it’s best you talk to a cpa.
it’s not rocket science, it’s accounting…yuck!
Thanks Dave