Sell a Home in Tucson to get the Perfect Home, without paying Capital Gains taxes?

A question received via email this week:

“I found the perfect home, and want to buy it.  However, I want to avoid Capital Gains tax, so I can’t sell my current home until November, when I will have owned and lived in it for 2 years.  What should I do?”

Answer: It depends.

There are several factors to consider:

  • Can you afford both houses?  For how long?  What’s the worst case scenario?
  • Will you be buying the perfect home as a primary residence?  Many loan documents explicitly state that you must occupy the property relatively quickly if it is a primary residence.
  • Do you have enough equity in the current house to sell it without bringing money to the table at closing?
  • Will your perfect home still be available in November if you have to wait?  Is the Seller of the Perfect Home willing to wait for you?
  • Are you willing to occupy your current house until November?
  • If you’re not willing to let the perfect house go, how will paying the capital gains tax affect you financially?
  • Is your current house likely to go up or down in value between now and November?  If the value goes down, which is better: to pay the taxes now at the higher value or to sell later and not pay the tax?

It’s a question with more than one answer, depending on the individual.  You need to talk with your accountant to get specific advice for your tax situation, and to your agent to learn more about the possibilities of selling and where the market might be headed by the time your 2 year occupancy period is up. 

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