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Suppose we buy a fixer upper and move into the house. We live there for 1 year, and during this time we make huge improvements on the house. After a year, we put it on the market and sell it. Will we have to pay capital gains tax if the closing price turns out to be a lot more than what we got it for?
Keep in mind that it will be our own residence for the year.
Do you feel you don't qualify for the law of living in the house 2 out of 5 years? How would you be exempt from capital gains taxes when living there only 1 year? Of course you have to pay taxes if you make more than you bought it for in such a short period of time.
You would be able to add the cost of the improvements (with appropriate documentation) to the basis of the home value, but you'd still have to pay capital gains tax on the profit if you've only lived there for 1 year. It's a pretty straightforward test on whether you've lived there for at least 2 of the last 5 years.
Yes. You have to have lived in it for at least two of the previous five years to avoid capital gains tax.
Generally that is correct. However there are ways to get a prorated exclusion for living there less than 2 years depending on the reason for your move (job related, at a distance, being one of them). But...that doesn't appear to apply to the OP's post so the standard rules would likely apply, contingent on whether the zero bracket is a consideration.
any long term capital gains that fit within the 15% tax bracket with all your other income is tax free . if you are over the 15% bracket than it is taxable
any long term capital gains that fit within the 15% tax bracket with all your other income is tax free . if you are over the 15% bracket than it is taxable
Damn it.
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