Can I avoid tax on my home sale by buying a new one?

October 8, 2004


Subject:  Avoid paying capital gain?
Date:  Mon, 20 Sep 2004
From:  Lucia

Hi Mike,

My husband and I bought a home in Palmdale, CA on June, 2003. We want to sell the house now and buy a new home. We were told we could avoid the tax if we bought the replacement residence within a certain time frame. Is that right?

Thank you,

Lucia

Answer

Date:  Fri, 08 Oct 2004

Hello Lucia,

Your friend is thinking about an old tax law that has been repealed and replaced with the new "more than two years holding period" rule. If you sell your home with the facts you gave me, any gain will be taxed as a long-term capital gain. Remember California taxes long-term capital gains at the same rates as other income and will require income tax withholding for the sale of 3 1/3% of the sales price.

Good luck!
Mike Gray

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