Primary Residence Tax Strategy
Did you know…?
When you sell your primary residence, you are exempt from taxes on up to $250,000 in gains (or $500,000 for a married couple). That’s good! But did you know that you can sell a primary residence every 2 years?
<break for disclaimer>
***I am not a lawyer, an accountant, or an expert! Seek professional counsel and visit https://www.irs.gov/taxtopics/tc701 before you attempt this kind of maneuver.***
<seriously, read that boring IRS page and consult an expert. OK, enough disclaimer >
So I just went against my “cash flowing rental properties are the best thing ever!” preachings and sold https://www.recolorado.com/listing/281462575-151082055/5074-raleigh-street-denver-co-80212/ even though it was cash-flow positive, with professional management and tenants already in place. Dumb? Possibly!
So why sell? Math, taxes, financial flexibility. Return on equity, if you wanna use fancy terms.
That house was formerly our primary residence and it had increased in value substantially since we purchased it. Capturing those gains frees up the capital to do some improvements (finish the basement, remodel the kitchen, replace the windows) at our new primary residence. Selling the old house now resets that 2 year clock, allowing us to realize potential tax-free gains on the new house as early as October 2022.
We don’t have to move again in 2022, and probably won’t. But it’s nice to have those tax savings to offset transactional costs!