Will we need to pay capital gains tax on our home that we owned for less than a year?
We are in Texas. We bought a house 10 months ago with a sales price of $255K. We put a down payment of $75K on it. We now need to sell it because my husband is accepting another job in a different company 90 miles away. We will be putting any and all money made from this house into buying another home. My question is, will we have to pay capital gains tax if we roll any profit into another home? And if we don't have to pay, is there a time frame to which we would need to buy another home? Would the new job qualify us to be exempt?
The capital gain will depend on whether you’re able to sell your current house above your purchase price, and by how much. If you sell at a gain after expenses, then—unfortunately—“yes”: You will have to report the gain and pay a tax on that gain, which your CPA will calculate for you. The IRS rules state that you have to meet the ownership test and live in your principal residence for two out of the five years of ownership in order to receive the Federal exclusion. This exclusion allows a married couple to exclude $500,000 of gains from capital gains taxes.
The IRS does not stipulate a time frame to purchase your next home—and unfortunately only military service transfers qualify as an exemption from the five-year ownership period. I have included the IRS section below for your reference. I would suggest that you speak with your CPA before you sell your home to help track the expenses associated with moving, as these could be tax deductible.