Question:
“I’d like to avoid paying taxes on the profit from my home. How long do I have after I sell my home to buy another one?”
Answer:
Well my friend, you’re either 1) behind the times or 2) confusing the rules for your principal residence with those for investment property:
- Until 1997, you had to buy another home to avoid paying tax on the gain from the sale of your residence. That changed with IRS 121 (I’ll expand in a moment).
- Under IRS Code 1031, you can defer gains on the sale of investment property if you buy another property within a certain time period. Know that other rules apply, which I will not detail here.
So, let’s talk about IRS Code Section 121: http://www.irs.gov/taxtopics/tc701.html.
Basically, as a single person you can exclude up to $250,000 ($500,000 for couples) of gain if you’ve owned and lived in the home as your principal residence for at least 2 of the past 5 years.
Put another way, if you sell and close escrow within 3 years of moving out, you can take up to $250,000 ($500,000) of profit tax free.
So that’s probably good news for you, since you have no time limit or requirement of buying another home.
