First, if you are intending to use the property as your personal residence in order to qualify for tax-free profits ($250,000 for a single person and $500,000 for a married couple filing a joint tax return), you must have resided in the property for two out of the past five years. Second, if this is an investment property and you sell for a profit, the property must be held for more than one year to qualify for the federal long-term capital gains rate of 15 percent. Check with your state department of revenue to determine the state long-term capital gains tax rate. If an investment property is sold before the one-year has elapsed, the profit is taxed at ordinary income tax rates.
Your one-year period begins on the date you close on the property.
Thomas Musil is director of the Shenehon Center for Real Estate at the University of St. Thomas in Minneapolis. E-mail questions to tamusil@stthomas.edu.
