Capital Gains on primary residence

[BostonBrit]

Hi Everyone,

Bit of a fat fire type question: Quick question on capital gains on a primary pricincipe residence. I'm from the Uk originally so apologies for the dumb question!!

Hypothetical situation:

Purchase house for $1m in 2010 - house is principle residence live in there with family fro full 10 years.
Sell house for $2m in 2025 and simultaneously buy a new $2.5m house.

House is owned by married couple, who have lived in it solely and are buying another primary residence. Assume zero other costs rebates relating to additions, refurb, buying/selling costs etc. Assume couple earn >$500k for simplicity.

In that above situation, is it true that you would be paying $100k in capital gains tax - ($2m less $1m cost less $500k allowance)*20%?

As I say, apologies if this is absolute 101, primary residence are completely CG free in the UK irrespective of values. Am I missing something, like a roll-over allowance or something like that?? It just seems to be either a material incentive or barrier for homeowners to consider moving once the gain on the property approaches $500k.

Thanks!

[Sandi_k]

Nope, that's correct. There used to be a rollover provision (i.e., buy another house of equal or larger cost) to shield the gains, but that hasn't been true for 20+ years now.

[EvenSteven]

You can add the cost of home improvements to the basis to reduce your capital gains, if that helps any.

[terran]

It would actually be 23.8% tax once the Net Investment Income Tax is included.

[lhamo]

You mentioned living in the house as primary residence for 10 years.  Not sure what your plans for the house are between 2020-2025, but in order to qualify for the $500k in tax-free gains you have to have lived in the house as your primary residence for at least 2 of the most recent 5 years.   

[MustacheAndaHalf]

Purchase house for $1m in 2010 - house is principle residence live in there with family fro full 10 years.
Sell house for $2m in 2025 and simultaneously buy a new $2.5m house.

I would expect them to pay no tax owing to the joint $500k exclusion when selling a home after living in it more than 2 years.

"If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse"
https://www.irs.gov/taxtopics/tc701

CORRECTION: I looked at the wrong two prices ($2m vs $2.5m), there's a $500k cap gain.

[yachi]

Purchase house for $1m in 2010 - house is principle residence live in there with family fro full 10 years.
Sell house for $2m in 2025 and simultaneously buy a new $2.5m house.

I would expect them to pay no tax owing to the joint $500k exclusion when selling a home after living in it more than 2 years.

"If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse"
https://www.irs.gov/taxtopics/tc701

But the gain is $1m, and the exclusion only totals $500,000.

[SeattleCPA]

It would actually be 23.8% tax once the Net Investment Income Tax is included.

+1...

And then remember the state income taxes which are in addition...

[MustacheAndaHalf]

Purchase house for $1m in 2010 - house is principle residence live in there with family fro full 10 years.
Sell house for $2m in 2025 and simultaneously buy a new $2.5m house.

I would expect them to pay no tax owing to the joint $500k exclusion when selling a home after living in it more than 2 years.

"If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse"
https://www.irs.gov/taxtopics/tc701

But the gain is $1m, and the exclusion only totals $500,000.

Oops, thanks.  I looked at $2m vs $2.5m accidentally.