Primary residence sale within 2 years

[Kaushik Sarkar]

Hi,

I am a single family home investor, however we are looking to sell our primary home in Chicago and moving to Dallas this summer.

We have bought the Chicago home in Nov'22. Would I owe tax on the profit I make on the sale of this primary residence property, since i have lived here less than 2 years?

Is there any guidance on how to save the taxes?

thanks

[Devin Powers]

Hi Kaushik, I am a CPA based in Dallas and have transitioned into real estate.  The short answer is yes you will likely trigger a tax consequence for selling your property.  However, the good news is since you've owned the property for over a year it will be considered a long-term capital gain which holds a much lower tax rate than if you owned it for less than a year.  There are a couple of ways to reduce your tax liability if you decide to sell within the 2 year period:

(1) If you've made any capital improvements to the house, you will likely be able to reduce the amount of capital gains tax you will pay on the property.  Make sure to find those receipts and invoices so that you can include those in your tax return.  Common types of renovations that can reduce your tax liability are adding new bedrooms, bathrooms, etc.; remodeling an existing space; replacing or adding AC, flooring, insulation, roofing, etc.  However, minor cosmetic repairs or repairs to personal property cannot be deducted such as paint, replacing broken hardware, fixing leaks or holes, etc.

(2) If you have other types of investments (e.g., stocks or mutual funds) that are operating at a loss, if you liquidate those investments to take a loss, you can use those losses to offset your capital gains.