Author Topic: Sold house, made profit, taxes...  (Read 214 times)

Just Joe

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Sold house, made profit, taxes...
« on: July 31, 2020, 09:17:45 AM »
Background: we lived in first house. Bought second house with bridge loan.

Renovated first house. Sold it. Made roughly $70K profit.

Bank says it will cost $150K to close out the bridge loan. $70K is left over (the profit).

Plan to put the profit on the mortgage of second house to pay down the principle. 

If I take a cash payout of any of that money - what kind of taxes will I be faced with?

Am thinking about replacing the roof of the second house with some of the profit. Rest goes on the principle.

Completely new topic to me. Don't want to solely rely on any real estate agent or bank loan officer opinions.

Thanks. -J

srad

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Re: Sold house, made profit, taxes...
« Reply #1 on: July 31, 2020, 10:15:47 AM »
If the 70k profit is from the house you lived in for 2 of the last 5 years.  There is no tax.  That's the beauty of living in homes that you fix up.  All that money is yours tax free. Up to 250k for the individual and up to 500k for a married couple. 

Now if you rented it for any of those years, you will have to pay depreciation recapture.

Just Joe

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Re: Sold house, made profit, taxes...
« Reply #2 on: July 31, 2020, 10:20:59 AM »
Thank you. That's how I read it on the IRS website but I wanted to hear it from someone else.

BicycleB

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Re: Sold house, made profit, taxes...
« Reply #3 on: July 31, 2020, 07:55:48 PM »
I believe that as long as you meet the 2-of-the-last-5-years requirement, you can do this again and again. Whoo hoo!

Dicey

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Re: Sold house, made profit, taxes...
« Reply #4 on: August 01, 2020, 09:15:54 AM »
Plan to put the profit on the mortgage of second house to pay down the principle. 
Please spend a little time on this thread before you do:

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

With mortgages at such extremely low rates, refinancing and investing will get you to FIRE much faster. Some would even suggest a cash-out re-fi up to 75-80% LTV is the most mustachian way to go.

For sure, fully fund your Roths to keep some as much of that sweet tax-free profit tax free forever. Congratulations!