How will I be taxed on the money from the sale of my house?
While waiting to sell my current home, I would like to take $90,000 from my savings and use it as the 20 percent down on a new home. Once my old home sells, I would like to pay myself back the $90,000. How will I be taxed on the money from the sale of my house?
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There is a good chance you will pay 0% in taxes on the sale of your home. The tax code has a provision called the primary residence exclusion where you can shield profit from taxation following the sale of your home. If you have been living in the house for at least the past two years, you can qualify to not pay taxes on the profit of up to $250,000 if single, or $500,000 if married.
You May Not Be Able To Avoid All Taxes
The longer you've lived in the house, the closer to the full $250,000 ($500k married) you can shield. If you haven't lived in the house in the past two years, you may still shield some of the profit, but you will want to talk to a CPA or a tax-experienced financial advisor to get the details for your specific situation.
You Only Pay Taxes on Profit
Even if you owe taxes it may not be as much as you think as you generally will pay a 15% tax on any profits that aren’t shielded. The profit on the home sale is calculated as the sale price minus the purchase price and minus sales commissions and other expenses. So, if you bought the home for $100,000, sold it for $225,000, and paid $25,000 in total sales commissions and fees, your profit would be $100,000. in this instance you would owe a $15,000 tax.
You Likely Will Owe No Taxes
Based on your question, you should be able to avoid taxation. The only thing that might throw a wrench in the plan is to wait too many years to sell the current home. My guess, though, is you will be able to get it sold within the timeframe without a problem. If you have a CPA or financial advisor, it could be worth sitting down with them for a few minutes so that you know your maximum timeline based on your situation.
The following is the IRS publication which explains the exclusion. https://www.irs.gov/publications/p523