House selling tax strategy

[Stephen Kozlowski]

Didn't know if any of you could help me out with this scenario / example:

Person A purchases a home in year "X" and this person sells the house for a profit (say 25k) after owning it for 11 months (<1 year = capital gains tax). Person B purhcases a home in year "X" and this person realizes he could sell the house for the same profit the same time Person A does, but waits 12 months and day before selling it for the same profit (>1 year = taxed on ordinary income). Also, person A and B are living in this house at the time. Which strategy is better if both Person A and B fall within the 25 percent tax bracket?

It seems obvious that Person B's strategy is better? But by how much? Is it worth waiting for Person B? (Is there enough information to know whats better?)

Any advice would be greatly appreciated.

Thanks!

Steve

[Todd Tracy]

Hi, Steve,

Qualifier - not a CPA/enrolled agent, but pretty in tune with overall taxation.

If I'm reading your question correctly, Person B will get the better deal on capital gains tax to the tune of $2,500.  Person A pays 25%, their nominal tax rate, on the gain of 25K, and Person B pays 15% on the same gain.  15% is the current long-term capital gains rate for person in 25%  nominal tax bracket.

"Worth waiting" depends on the person, doesn't it?  If it's a month or two, just arrange for the contracted close date to come in at a year and a day and pocket the extra 2.5K.

The real savings would be to stick around the house for another year - if you live in the property 2 of the last 5 years, you can avoid paying all taxes on the profit of the sale up to 500K for a married couple, 250K for a single person.

Anyone else care to chime in, correct, etc?