Legal Question in Tax Law in California

capital gains on a home owned less than two years

I am confused over the capital gains law regarding an owner-occupied home that is owned less than two years. For quite awhile, many people have told me that as long as I buy another house that is 1 dollar more expensive than the sale price, there are no capital gains, in effect, rolling it into the new house. However, I have now heard this is not the case and someone must be in their house 2 out of the last five years to qualify for no capital gains. Which is true? Also, if the latter is true ,and i'm about 6 months from no capital gains, can i rent out the existing house for 6 months, move into the new home, then move back in the original house for 6 months, sell the home, then move back into my 2nd newer home and avoid the capital gains. Thanks.


Asked on 3/29/04, 4:34 pm

1 Answer from Attorneys
Ken Koenen Koenen & Tokunaga, P.C.

Re: capital gains on a home owned less than two years

You may not roll your capital gain into another property when it is your primary residence. The new tax law provides for a $500,000 (if married and filing jointly) exemption from capital gains tax provided you have lived in the property for 2 of the last 5 years, and have not sold another primary residence within the past 2 years. They do not have to be consecutive years.

You can move out for awhile and then move back in. You must actually live in and own the property for 2 of the past five.

If you are moving because of a job change there is an exception to the two year requirement, but that does not sound like the case here.

How much gain are you talking about? Your purchase expense and selling expense are deducted from the difference between the purchase price and the selling price. Then, the Capital Gains tax rate now is only 15%.

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Answered on 3/29/04, 6:03 pm


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