Trying to Sell within 1yr

Hey guys and gals,

I live in Texas and purchased my home about 6 months ago. I have about 35k equity and trying to find a way to get my equity out without paying 15-25% in taxes since I’m selling before the 2yr mark.

Can anyone give me any creative thoughts regarding this?

I need all the equity out to pay off some bills and put money down on my new home.

Evading taxes is not considered a creative real estate practice. :doh: If it is your primary residence, there are some exceptions allowed by the IRS that will let you excluded a portion of your capital gains…

These exceptions are:

A change in place of employment,

Health, or

Unforeseen circumstances:

  • An involuntary conversion of your home.
  • Natural or man-made disasters or acts of war or terrorism resulting in a casualty to your home, whether or not your loss is deductible.
  • In the case of qualified individuals (listed earlier under Change in Place of Employment):
    • Death,
    • Unemployment (if the individual is eligible for unemployment compensation),
    • A change in employment or self-employment status that results in your inability to pay reasonable basic living expenses (listed under Reasonable basic living expenses next),
    • Divorce or legal separation, or
    • Multiple births resulting from the same pregnancy.

Unless you qualify, maybe a better course would be a HELOC.


Why are you selling so soon?

We actually have lived there for about 2yrs but just got it in our name. We are the youngest ones that live in this complex and the HOA is out to get us, always complaining.

I think we will stay in the town home until the 1st of Jan to avoid the 25% and only pay 15%

Thanks for your replies.

I believe if you have owned and lived in the house for 2 years there is no capital gains tax up to 250,000 if your single and 500,000 if your married on principal residences. Ask mcwagner- he is reiclub’s resident CPA.

There are three rules you must meet to be eligible for the capital gains exclusion.
[]You must have occupied the property as your primary residence at least two years of the five years prior to sale, and,[]You must have owned the property as your primary residence at least two years of the five years prior to sale, and, [*]You can not have used the capital gains exclusion in the 24 months prior to sale.
To qualify for the capital gains exclusion you must meet all three of these tests.

From your post, it sounds as though you have not owned the property at least two years (“We … just got it in our name”). You are not eligible for the capital gains exclusion, yet. From the information in your post, you don’t qualify for a reduced maximum exclusion either.

Since you have not owned the property more than one year, a sale at this point in time will be a short term capital gain. Waiting until you have owned the property at least one year and a day, but less than two years will qualify you for long term capital gains tax treatment.

Once you have met the three two-year tests I listed above, you can exclude the first $250K of your sale profit from long term capital gains tax treatment.

On the other hand, since you have owned the property only six months, how much “profit” do you have to be taxed? It is not your equity that you are concerned with here as being taxable, it is your profit. Tell us some numbers, how much can you sell your property for and how much did you pay for it? Figure out the difference, then subtract your selling costs (closing costs, seller concessions, sales commission). The result will be your taxable profit.

Even if the sale of your home is a taxable event, maybe you can minimize the tax impact. If you have some stocks that have lost value since you bought them, you can sell them at a loss to offset the gain on your home. Try to use short term losses to offset short term gains.

We bought the townhome for 62k and was gifted equity of 20k, it was appriased at 82k.

We want to do FSBO so there wont be any commission. The townhomes in my area have been known to sell within a couple of days because of the area and honestly we can afford to wait a couple of months before selling so putting up signs to get a list of buyers is probably what we plan to do.

OK, you bought for $62K. Did you make any capital improvements such as landscaping, or a room renovation? If so, then the cost of these improvements are added to your cost basis.

You say the property will appraise for $82K, but will it sell for that much? What are similar properties in your area selling for? Let’s say that the estimated appraisal is a good number. You advertise FSBO and get an offer for $77K. Will you accept it? What if the offer is for $82K with a $5K seller concession for closing and settlement costs – will you accept it?

If your profit is $15K (the difference between your cost basis and the net sale price), and taxed as a long term capital gain, then your maximum federal income tax liability on your sale profit will be $2250. If you happen to be in a lower tax bracket, then the federal income tax bill will be even less.

Since we live in a Townhome community, the HOA takes care of eveything outside our townhome. The inside has been upgraded with light fixtures and paint and little stuff like cabinet knobs, and carpet. Similar townhomes have sold for as high as $110k due to the area so we will probably get about $105k - Would accept anything under $100k

I think the tax % would be 15% after a year and one day and 25% before that time.

OK, so you don’t have any capital improvements.

If the property appraised for $82K just six months ago when you bought the property, why do you think it will sell for as much as $105K to $100K now?

Is your real estate market that hot?

All the homes are being sold higher than the appraised value because of the area and the community. The average age group is about 60-90yrs old so it is perfect for the retired folks which is why they sell within a week of placing a sign out infront of the community.

Appraised value is usually based upon recent sales of similar properties (comps in other words). Are you really referring to the tax assessed value, and calling that the appraised value?

There is a big difference.