Primary residence and CGT
 

Hopefully somoene will know the answer to this. If my primary residence increases in value by $250k ($500k married) is it advisable to sell up and move before it has increased in value by $250k in order to avoid capital gains tax?

Re: Primary residence and CGT
 

That would be a legitimate tax avoidance strategy, but remember you can only use the $250,000/$500,000 exemption once every two years.

Bearing in mind of the transaction costs of buying, and especially selling, I think I'd wait until the gain was around $600,000 before I'd bother to try to save some tax by moving. - IOW the sell-buy and relocation costs are just another form of tax - money gone from my pocket that I can no longer spend.

Re: Primary residence and CGT
 

I was about to bash the desk with my head when I read that. It drives me insane when the UK /Aussie peeps wonder about selling up purely to avoid paying CGT. Or another one on income tax side, they ask about switching to a higher mortgage interest rate so they have more tax deductible expenses.

Anyway having quickly read up on the U.S. $250k rule, I see what you mean.

Interesting rule, does it lead to people moving down the street a lot just to avoid CGT on long term gains? Anyway I'd agree with post above, I can see no reason why you should sell before reaching the $500k limit because of all the expenses of buying / selling / moving / stamp duty (if there is such a thing). I would only be thinking of it if there was a larger gain and to be honest, if I had no emotional attachment to my home.

Re: Primary residence and CGT
 

Yeah, that's always a good one. I used to know a doctor who paid off his mortgage, then people asked him what he deducted from his taxes. :rolleyes:

It is confounding to me that people can't see that deducting something from your taxes is only a way of reducing an expense (reducing your tax bill), not a way of making any sort of gain or profit. Not that I'm aware of.

Re: Primary residence and CGT
 

I guess the other option is to do improvements on the house to offset CGT, such as new bathroom, kitchen, roof. deck. The trouble may be that this increases property taxes.

Re: Primary residence and CGT
 

You would hope that improvements would add some value to the house too. Or do you man do a load of unnecessary improvements to offset CGT? Are you sure you will be selling up down the line anyway?

Is CGT really that bad anyway? Would you turn down a payrise because it will mean more income tax? Could you not just change your mindset and pretend it is smaller sales priceeds than you had thought?

Re: Primary residence and CGT
 

Well the tax is going to be a relatively modest amount anyway, assuming MrKen doesn't live in a palace. Say you bought a house for $600,000 and it doubled in value to $1.2million, the gain is $600,000, reduced by the $500,000 exemption to a taxable amount of $100,000, and then CGT is 20%, so $20,000, ..... on sales proceeds of $1.2million, or just 1.67% of the gross transaction value.

Much as I abhor paying unnecessary or excessive taxes, if I had a home worth $1.2million I can't see myself selling it and moving just to save a relatively tiny amount in taxes. .... To my earlier point in this thread, you'd end up paying massively more to the realtor alone than you'd save in taxes, even before all the other expenses of moving house.