06 Nov If I sell my home and rent instead, do I pay taxes on the profit?
Q. If I sell my primary residence for a $100,000 profit, and if I don’t buy another home but rent instead, do I have to pay taxes on the profit?
— Renter, maybe
A. That depends.
The rule is that you must have lived in the personal residence for two of the past five years and did not exclude the gain from another home within the two-year period prior to the sale of your home, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.
Singles can exclude up to $250,000 or gains, and married couples can exclude $500,000.
To calculate your gain, start with the selling price. From that, you subtract the cost basis.
“The cost basis is comprised of the amount paid for the personal residence, the closing costs on both the purchase and sale of the property, and any improvements made during the ownership,” Karu said. “Improvements include anything that enhances the value but is not deemed to be a repair. For example, a new roof is an improvement, whereas patching the roof is a repair.”
As long as the house is your primary residence and you have lived in it for two of the past five years, any gain under $250,000, or $500,000 if filing a joint tax return, is not taxable, he said.
Email your questions to moc.p1606845938leHye1606845938noMJN1606845938@ksA1606845938.
This story was originally published on Nov. 6, 2020.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.