Tax Guru – Ker$tetter Letter

Q:

Kerry,

The article you posted at your site was very helpful and educational… and I wanted to thank you for taking the time to post it. I need some clarification on something. I am about to sell my primary residence in Dallas. My profit is around $20K. I’ve only lived in this house for 8 months. Do I have to pay captical gains on this $20K even if I roll it into the purchase of a new house? Any other suggestions to avoid the capital gains tax? Thanks.

A:

It looks like you need to work with a professional tax advisor because I thought I had both of those issues explained fairly clearly on my website.

What you do with the money from your sale has absolutely no bearing on the taxability of the sale.

The only way you will be able to exclude the gain is if the reason for your sale so soon after its purchase is due to a health or employment reason or other unforeseen circumstance.

You should do a thorough accounting of your cost basis in the home, including all capital improvements.  The higher the cost basis, the lower your profit, which is also reduced by selling costs.

None of this is very complicated, so pretty much any tax pro should be able to help you.

Good luck.

Kerry Kerstetter