Selling Home In Skyrocketing Housing Market: Worth Capital Gains Tax?

Added February 25, 2009 by Ilyce R. Glink

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Summary: Is it worth it to sell your home before living there 2 years and pay the capital gains tax - especially if you're living in a skyrocketing housing market. Despite the capital gains tax, if the market value of your home is increasing drastically, it might be worth it. But, if you have not lived in your home for 2 years, the capital gains tax would be 15% of the profits.

Q: My husband and I have purchased a home and only lived in it for 5 months. In a very short time, the housing costs in our area have skyrocketed. Our house is now worth around $100,000 more than what we paid for it.

If we were to sell it and re-invest all of what we make into a more expensive home, do we still get hit with capital gains?

A: Yes. Unless you've lived in your home for two of the past five years, you will have to pay 15 percent capital gains tax on the profits. In your case, that would amount to $15,000.

The question is, why move now? Why not wait another year and a half until you can keep all of the profit tax-free? Do you believe that this is a temporary spike in prices and that prices will ultimately fall?

If that's your take, then you should sell and move into something that has more potential to increase in profits down the line or use your windfall and move into an area with a better school district.

Paying a little tax is better than missing all of the profit.

Jan. 2, 2004.

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