What Is the 2-Out-of-5-Year Rule?

What Is the 2-Out-of-5-Year Rule hero image showing question marks around a house.

When selling your primary residence, taxes still matter — and they can get complicated. Your home is a capital asset and, therefore, subject to capital gains tax. If your home appreciates in value, you might have to pay taxes on profit. However, there are exceptions.

Jan 31, 2024

Can You Avoid Paying Capital Gains Tax by Buying Another House?

Can You Avoid Paying Capital Gains Tax by Buying Another House?

Can you avoid capital gains tax when buying another house? The answer is nuanced. If you're selling an investment property and planning to reinvest the profits into another, it is possible to defer capital gains tax. Under IRS Section 1031, if you reinvest your gains in a 'like-kind' property within 180 days of the sale, you may qualify for a deferral of capital gains tax. However, to maintain compliance with the rules, keeping your funds in an escrow account managed by a Qualified Intermediary is often necessary until the new property is purchased.

Jan 30, 2024

What are the Exceptions to the 2 out of 5 Year Rule?

Unconventional real estate paths. A detailed house symbolizes unique living options, while a forked path represents choices. An embedded hourglass emphasizes time's influence. Serene sky with soft hues creates a contemplative mood.

Selling a primary residence for a profit can mean paying a lot in capital gains taxes. Unlike investors, the 1031 exchange isn’t available for primary residences. However, homeowners can still limit or completely exclude capital gains taxes. One of those options is an eligibility test called the 2 out of 5-year rule. Let’s see how it works.

Dec 31, 2023

How to Help Clients Defer Capital Gains on Their Investment Real Estate

Over the last few years, real estate properties have greatly appreciated. For any of your clients looking to sell, it can mean a nice profit. But with a nice profit comes a not-so-nice tax bill.

Dec 7, 2023

Do You Pay Taxes On Capital Gains That Are Reinvested?

Do You Pay Taxes On Capital Gains That Are Reinvested?

One reason why people invest is to generate extra money. When investors sell that asset for more than what they paid, they come away with a profit, known as capital gains. The problem is that the capital gains will likely trigger a taxable event.

Dec 1, 2023

Can Capital Losses Offset Dividend Income?

Capital losses result from the sale of a capital asset for less than the basis. For example, if you buy stock for $1,000 and after holding it for two years you sell the stock for $500, you have incurred a $500 capital loss. In contrast, if you buy the stock for $1,000 and after holding it for two years you sell it for $3,000, you have earned a capital gain of $2,000.

Nov 29, 2023

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