Quote from @Francisco Avellan:
Hi everyone,
I bought my primary residence 8 months ago. I intended to live here for 2 years and then keep it as a rental property. The issue is that a train track runs behind it and the vibration is horrible (literally feels like an earthquake day and night). I do not think it will work as a rental property because of this, so I am thinking about selling it. My estimated profit on the sale would be around 100k.
Since I´ve lived here for less than 2 years, would there be any way to avoid paying the capital gains tax? Thank you all!
If you property has been your primary residence and it's been less than 24 months, you may decide to hold off until you’ve reached that threshold to avoid capital gains tax (unless you are okay with opting for 1031 exchange or doing QOZ Fund)
If you still decide to sell your property within 2 years, try to stretch your ownership out to at least 12 months, or your profit will be taxed as ordinary income. The IRS doesn’t have a ceiling for short-
term capital gains taxes, and you may be hit with up to 37 percent tax.
As you know, your short-term capital gains taxes range from 0% to 37% and your long- term capital gains taxes run from 0% to 20%. High income earners may be subject to an additional 3.8% tax called the net investment income tax on both short-and-long term capital gains.
So, yes, if your only objective to avoid capital gain and pocket the profit (not to do 1031 exchange or QOZfund), then stretching it to 2 years is your best option.
Sorry I didn't have good news for you.
Given that you've made that much in a relative short period of time I think you are great investor already and will be pursuing it in a future, but please keep in mind for your future investments that there only 3 options:
1. Invest using tax-advantaged accounts when possible.
Tax-advantaged accounts generally don't generate capital gains taxes federally, and generally not at the state level although individual state rules may apply. So investing in these types of accounts could help you benefit from that major perk. As a bonus, some accounts may offer tax-deductible contributions, potentially lowering your tax liability.
2. Hold on for the long term.
One of the biggest deciding factors in how much you may owe in capital gains taxes is how long you hold those investments.
3. Consider tax-loss harvesting.
Tax-loss harvesting allows you to sell investments that are down and use those capital losses (meaning you sold for less than the
purchase price) to offset the capital gains generated by other investments.
It's not your current case, but great to know for the future.
Best of luck to you with your future investments!
