TAX IMPLICATIONS OF SELLING

You may have heard the advice that to avoid paying taxes on the profit of a home you need to live in the home for at least 2 years. Luckily this is not an "all or nothing" event. The benefit can be prorated month to month if you had to move for a job change or health event.

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So say you lived in a home for one year and needed to sell because you were only there for intern year and need to move onto your residency location. That would be 12 out of 24 months or 50% of the total tax credit you earnest. If you make a profit of 200,000, you would need to pay taxes of 50% or 100,000 of it. Depending on what your income is that year, you would pay at a 15, 20, or 23.8% tax rate on the 100,000.

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Also, the 2 years living in the home do not need to be consecutive. As long as you have lived in the home 2 of the last 5 years (as reported as your primary residence on your taxes), you can still sell the home and get this benefit.

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EG: A dermatology resident bought in her hometown for intern year anticipating to come back after training for an attending position. She lives there for one year, goes away for a 3 year residency, and comes back to live in the home her first year as an attending. As long as she sells by the 5 year mark, she can still qualify for the capital gains tax exemption (as of 2022).