L Bee and the Moneytree

Is it Time to Sell Your Home? (A Post About Capital Gains Tax)

My home, she’s a cutie. I call her a “she” because even though she’s cute, she is definitely a bitch. And really high maintenance. I know, I know, that’s called homeownership, but I’ve been fed up with this house for a really long time.

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Suffice to say, after losing my beloved pet Murray, it’s become especially difficult and painful to be at the house, and I want out. 

Reasons to Stay

The great news is that given the extensive renovations I performed on the house, I’ll be able to sell it at a considerable profit. I’m looking at walking away with anywhere between 25-40k. The only hitch is that given that I will have only been in the house for a year by the time I sell it, I would have to pay capital gains tax. If you stay in a home for 2 years and sell it at a profit, you do not have to pay the tax.

So, if I get my pie in the sky dreams and walk away with the full 40k, that means I will have to pay (roughly, because we’re not counting deductions etc.) 25%, 1/4 or 10,000 smackaroos. (Side bar: where did the word smackaroo come from?) Bankrate has a great article about the ins and outs of the capital gains tax for real estate here.

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Reasons to Go

From almost the very beginning this house has been a drain on my emotions, mental bandwidth and, of course, my wallet. I still had close to 10k in savings when I bought the home last year, but the renovation (as most renovations do…) went over budget and decimated my savings.

My contractor…well he wasn’t great, and I’m almost positive he was taking money off of the top. Because of this, we had a falling out in the final weeks of the renovation. Much of the major work was complete, but some of the finer details were left undone. I paid him what I owed to get him out of my life, and resolved to fix the minor things myself, thinking that would be easier and it was. Although I’m tired of sinking a little bit here and there into the home every month to cover the things he failed to fix. I know I’ll get that money back when I sell, but it’s still money I’d otherwise like to prioritize.

Financial reasons aside: It was a house that I bought with my ex, and purchased thinking I could both a) get a good deal and b) we could stay there for many years since it has 3+ bedrooms and over 2000 square feet. I got a good deal, but now that I am on my own and without a dog to enjoy the benefits of the yard, I don’t need to heat/cool and keep up 2000 square feet of space and an acre of land.

How Much is Your Pain and Suffering Worth?

My circumstances have changed exponentially from when I bought the house nearly a year ago. Buy a large single family home with your ex and see how you like it.

Still, even though I’ve learned a lot and am wiser for all of my dealings with this house, I still can’t help but wish for a clean slate every day when I come home. Home really isn’t a comforting place to me. With Murray there I could kind of get over it, but it felt more like a never ending project than a refuge. I kept going last fall because, well, it was the only thing I knew how to do and I would never have been able to sell a half done house and get my money back out of it.

If someone came up off the street and gave you 10k to stay in a place you didn’t like, would you? Should I sell, take the money, and run and pay the taxes later? How much is all of my heartache worth?

P.S. More about buying your first home

  • Lauren, I’m so sorry to hear about this situation – it sounds like an absolute nightmare. Personally, I couldn’t stand living in a place that exhausted me and brought back negative memories (of your ex-fiance and sweet Murray). I would sell the house and just take the capital gains tax. You’ll still be ahead financially if you’re able to sell it at a profit so might as well. Also, you’re young enough that down the road, this’ll all be a drop in the bucket and what’s the difference between 5k and 10k at that point?
    Do what’s best for you, not just for your wallet. Sending positive thoughts your way!

  • Chris Gilmore

    Sorry to hear that, Lauren. I would rent the home if possible and sell 2 years later. Aside from capital gains tax, your home will surge in value once the BeltLine gets to your area.

  • I totally feel your pain!

    My husband is super close to a big promotion–that would take us halfway across the country. If it happens soon, we’ll have to sell our house within that first-2-years window.

    Taxes. They’ll get you coming AND going, really.

  • Mike

    Lauren, have you considered getting a roommate? Perhaps a friend whose apartment lease is up could move in with you and share expenses. Alternately, if you really want to move, you could rent the house and keep it as an investment property. Finally, if you decide to take the hit and sell, you can probably deduct the renovation costs from your gains, minimizing the tax hit. This will be the one time that going over budget on your renovation will pay off!

    I hope things turn up for you, just keep in mind that despite the challenges and sad memories, you are doing well financially and have tons of opportunities ahead of you. Whether you take the capital gains hit or go another route, you are ahead of most of the world!

  • Are you sure the capital gains rate will be 25% instead of 15%? Usually when you own an asset more than a year you get the lower rate, but there could be some super special rules I’m not aware of that only apply to primary residences.

    I agree with Chris: you’d probably come out ahead financially renting it for a couple of years and waiting for the beltline to finally come through, if it ever does. I’m sure Paula could recommend a good property manager!

  • Any chance you could rent it out for a year? That might be worthwhile to get an extra $10k. Sure it would be a little more annoying but you could get out of the place and find a rental that is more suited to your needs.

  • I would sell it and take the loss. It does not sound like it’s worth the physical, mental, and emotional toll it is taking on you right now. Life’s too short to be miserable because of money.

  • While paying taxes sucks, the focus on the taxes is often overstated. The fact is that you’re paying taxes because you made money. After all the alternative is that you sell the house and don’t pay taxes…which then means that you didn’t make any money at all. I think I’d rather pay the taxes. Point being, don’t let the taxes be your deciding factor.

  • Ohh, that’s hard. For me those emotional factors would be a real killer, if it was me I would probably lean towards selling.

  • Melissa

    If you can stomach it (and afford it) I really like the idea of renting it out to a family and living somewhere else. Is there any place in your city you’d really like to live? Like an arts district, or downtown? You could rent out your house, live downtown, and have your renters maybe pay both your mortgage and (part of) your apartment rent.

    It may not be ideal, but now’s a chance to live somewhere you really want to because you don’t have to run it by an SO and you don’t have to worry about a yard for a dog.

    I feel you on living in a place that drains you emotionally though. It’s not worth it!

  • stephen

    Hi Lauren,
    You might find the advice of an accountant useful in helping make your sell/stay decision. There is an exclusion for much of your capital gain (if not all of it) for “unforeseen circumstances” such as a death. It is based on the time you spent in the house and it is possible that Murray’s passing would qualify. These are defined in an IRS publication I think it is 523 but you’d have to look. You will also have to work over the numbers; pur. price + improvement costs + selling expenses – depreciation (if you have taken any) to get your basis. Then if you have been in the house a year and qualify as above you’d be able to reduce the capital gains by half. My advice is find a way to hold it for another year but if you are compelled to depart then work to reduce the tax liability – some options do exist. Or, you can move down here to New Zealand where we don’t have any capital gains tax!! Good Luck, Stephen

  • Ditch it.
    Never make big financial decisions based solely on the tax consequences.
    If you’ll still walk away, after taxes, with a profit, it’s a no-brainer.
    You’ll find so many more opportunities for fun and profit when you release the stress this house is causing you!
    Take Care – Leah, the MoneyDiva.com
    P.S. Get it sold during this summer selling season, even if you have to rent a storage unit and crash at a friend or relatives!

  • =( I’m so sorry to hear this, I can’t image how you must be feeling. I think if you need to leave you should, home should be a place that makes you feel happy. If you only have a year and it’s three bedroom could you not rent it to cover the cost of the mortgage for a year, and maybe rent a place somewhat nearby to keep an eye on it. You may also want to consider talking to a tax accountant regarding the capital gains, I don’t know the rules in the US but there may be someway around it? Best of luck and sending lots of hugs from Canada!

  • Any chance you’d consider renting it out? I can see that it’s causing you a lot of pain, so living there a lot longer probably isn’t an option. Sorry that you’re having such a difficult time! I’m sure you’ll know what the right choice is for you.

  • Melinda

    Not coming from a financial perspective, but a personal one: you’re worth it. Your happiness is worth every penny of taking a tax hit. And after sinking nearly $1300 a month (yes, read that again and wince with me) for the entirety of a year to live in a “beautiful” apartment last year that never quite felt like home, sometimes it doesn’t matter what you spend or save if your heart’s not in it. Nothing is worth the cost of your happiness — and home should be the one place that you can feel happy, secure, comfortable, and forward-thinking.

    A lot of bad crap has happened over the last year, but a lot of wonderful things have happened in your life as well. Take the net gain out of this house and find a place that feels like home. Trust me, as someone who sees the ins and outs of real estate (and what truly crappy things people do with real estate), you don’t want the heartbreak and hassle of a tenant unless you know that person VERY well.

    Sending all my well-wishes your way for this decision and your healing over the loss of your furbaby. I read that post and cried too hard to even respond. Bad things happen to good people, but that doesn’t mean you have to stay put and keep dwelling on them. Make the choice to be happy, whether that’s in your current house or a new home, and I know you will be.

    Lots of love to you!

  • Sydney

    Definitely look into a 1031 exchange, especially if you are ever considering an investment property as your next spot.

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