Capital gains taxes

Driftwood

First Tremor on Methods!
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My wife and I have sold our home we built in 2016. We built for $770K, and are set to close on 9/1 for a sales price of $1.55 million. So we have a net profit of $780,000 in just 5 years.

Of that $780,000, I understand we can exclude $500,000 as a married couple. That leaves $280,000. We are under contract for 7 acres in AR for $142,500, hoping we can use that to offset some of the capital gains tax.

Anyone familiar with how this works?
 
As long as you do a long term investment within a year you will be okay. If you have a CPA or a wealth management person(I.e Merrill lynch- etc) you could get advice from them. I run all our purchase information through my wealth management manager.
 
We plan to start construction within the next few months on the land we are buying. Does that count as a long term investment? We plan to build much smaller and cheaper than the property we have sold here in TX.
 
(I’m not a tax professional)

First: Congrats on a 15% annualized return. That’s crazy!

I think you’re thinking of a 1031 exchange which only applies to investment properties. A 1031 exchange lets you set the cost basis of the new property to the cost basis of the old property, deferring the taxes until the sale of the new property.

Hopefully someone with a CPA has a better answer for you…
 
My wife and I have sold our home we built in 2016. We built for $770K, and are set to close on 9/1 for a sales price of $1.55 million. So we have a net profit of $780,000 in just 5 years.

Of that $780,000, I understand we can exclude $500,000 as a married couple. That leaves $280,000. We are under contract for 7 acres in AR for $142,500, hoping we can use that to offset some of the capital gains tax.

Anyone familiar with how this works?
Buy some land in Wisconsin. I know a guy who will manage/hunt it for you. 😎
 
My wife and I have sold our home we built in 2016. We built for $770K, and are set to close on 9/1 for a sales price of $1.55 million. So we have a net profit of $780,000 in just 5 years.

Of that $780,000, I understand we can exclude $500,000 as a married couple. That leaves $280,000. We are under contract for 7 acres in AR for $142,500, hoping we can use that to offset some of the capital gains tax.

Anyone familiar with how this works?

You are correct you can exclude up to $500,000 of gain if you are married and lived in the home as a primary residence for 2 of the last 5 years.

To get a tax benefit with the purchase of the land, you would need to do a partial 1031 exchange. In order to do this you have to use a 1031 facilitator. You yourself can never touch the money that is being used to purchase the new property. So you couldn’t sell the home and then at a later date take the cash and buy the new one and still get a tax benefit.
 
Well, that is interesting. I saw a few articles on the 1031 but didn't realize we couldn't touch the money.
 
Well, that is interesting. I saw a few articles on the 1031 but didn't realize we couldn't touch the money.
Also to clarify, 1031 exchanges don’t typically apply to personal residences. Only certain circumstances does it work. The law was intended for business or investment properties.
 
They law was 5 yrs as primary residents no tax...this was in 2010 when we sold our last home. If it's a second home I got nothing that's why I pay a CPA.

Hmm.. I've bought and sold several homes through the years and I swear it was always 2 years, but I could be totally wrong.

We recently built our new home in Oct 2020 and didn't pay any tax on the proceeds from the sale of our old home and were not there for 5 years.
 
Hmm.. I've bought and sold several homes through the years and I swear it was always 2 years, but I could be totally wrong.

We recently built our new home in Oct 2020 and didn't pay any tax on the proceeds from the sale of our old home and were not there for 5 years.
You are correct. You have to live there for at least 2 years but it doesn’t need to be consecutive years, and the look-back period is 5 years. So any 2 years within the last 5 before sale then you qualify for the exclusion.
 
Also to clarify, 1031 exchanges don’t typically apply to personal residences. Only certain circumstances does it work. The law was intended for business or investment properties.

Best advise is to talk to a Real Estate Attorney & see if it qualifys. Then have them make sure you jump thru all the hoops. One thing to consider is that with the current rate on Capital Gains & you currently living in Texas with no taxes, you may want to consider paying the taxes & going down the road.
 
Hmm.. I've bought and sold several homes through the years and I swear it was always 2 years, but I could be totally wrong.

We recently built our new home in Oct 2020 and didn't pay any tax on the proceeds from the sale of our old home and were not there for 5 years.
Could be now in 2010 it was 5yr..i juggled 2 mortgages for 6 months so not to pay taxes on the one I sold...I think the law has changed since them..just stating no taxes are required in you meet the primary resident time period.
 
I could be mistaken, but if it was your primary residence for at least 2 years I don't think you are required to pay any tax on the proceeds.
They law was 5 yrs as primary residents no tax...this was in 2010 when we sold our last home. If it's a second home I got nothing that's why I pay a CPA.
The law since 1998 has been that any profit (sale-purchase) under 500k was not taxable. Any profit over 500k is taxed at long term capital gains rates as long as you meet the 2/5 rule. Here is a good page on the rules before the Taxpayer Relief Act of 1997.

 
I am a Realtor not a tax accountant or lawyer! You should be fine as long as you reinvest in another "primary residence" It would be a possibility tax liability if it was a second home. There is also an exemption for a one time sale once you hit a magic age. Sorry I don't remember the age, the law may have sun set by now. Trust your family accountant to put you down the right path as there can be other factors.

Something to look into: Some states are charging an EXIT TAX, my son just moved back from New Jersey and had to pay the tax. It was a line item on the closing statement . There if he was to purchase another New Jersey home within x number of months it would be credited back on the closing statement.

Colorado now has an exit tax my partner in crime ( ski buddy ) wants to sell his home in the mountains and was told my his Realtor there was a $12,000.00 exit tax.

Many "blue" states are now starting to charge it. There could be as many as 12 states with EXIT Tax. It may not be called a TAX, it may be called a FEE but plain and simple it's a TAX.


Best of luck on your sale and move! :cool: :cool: 🇺🇲
 
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