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My wife and I were kicking around the idea of selling our house. We closed 12/18 but we did do some some stuff to the house. Painted the walls took the popcorn off the ceiling painted the trim put in a new fence etc. I head stuff like that can get you out of paying capitol gains tax.
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If you can get a hold of Ken (ChunkyMonkey), he can explain that stuff. Capital gains is generally for investment stuff, which your primary residence generally isn't.
3 of 5 rule puts the primary residence into question.
Did you have a house before this that you sold to buy this one? Do you plan to use the proceeds for another home?
We were first time home buyers. Purchased the house did the work and yes equity from sale would go towards new house. It?s our only property
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Capital gains is usually 28% of net gain. House usually has had an exemption of 250,000 dollars.
The politicians change the laws all the time to confuse us. I would consult a tax attorney if the tax is over $10,000. I'm sure there is a website somewhere that will answer your question.
2 out of 5 rule is for home sales... if you lived in the house for 2 of the last 5 years, the first $250k, (or $500k if you file married joint) is excluded from taxes. If you live there less than 2 years, then you might still be able to exclude some amount of profits if you are selling for a qualifying reason (work location changed, medical reasons, and a few others). Activity Duty military also have some additional qualifying reasons. If you do have a qualifying reason, then you can get a portion of the 250k/500k exclusion... if you lived there for 1 year and sold with a qualifying reason, you'd be able to exclude half the normal amount. 18 months would let you exclude 75% of the normal amount, etc.
As for improvements, IRS says you can include cost of any "major improvements" to your cost basis.. that includes things like new roof, furnace, etc. It would not include painting. The IRS doc does include Fencing as an improvement.
Primary residence e.g. homestead exemption if you repurchase a new home you'll generally be fine. Like others have said, generally 3 years residence inside the last 5 is the threshold. There's super-special extensions to that, like 3/10 if you're some kind of bad-ass like James Bond. (not joking).
ETA: Is it 2 years now?
2nd ETA: If you've rented that house* and taken rental depreciation, you'll have to add all that up when the house sells and take that portion at the higher tax rate.
If you are planning to purchase a house again, on top of advices you can 103x exchange if over the threshold.
Just went through this this year. Bought in 06/17 sold 04/19. They are hard on the 2 year primary residence rule in CO. Now we were able to deduct some improvement stuff but still got hit with the cap gains tax. My advise, consult an accountant. they were able to work some Gypsy magic, as I was running numbers and they were going to hit us for 15-17k in taxes by my assessment but ended up owing 335$ once we got the final number from them.
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