More than $500K profit on sale of primary residence

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
jazzmania
Posts: 4
Joined: Sun Feb 23, 2020 5:51 pm

More than $500K profit on sale of primary residence

Post by jazzmania »

I've lived in my house for 10 years. Selling it this month will net me a gain of ~800K. Including the Net Investment Income Tax (NIIT), the overall tax rate will be ~25% on $300K. Is there a way to avoid this tax?
User avatar
FiveK
Posts: 10285
Joined: Sun Mar 16, 2014 2:43 pm

Re: More than $500K profit on sale of primary residence

Post by FiveK »

Sell investments with a $300K capital loss. Contribute ~$300K to charity.

If you and the buyer are so inclined, sell it by land contract so you can defer the gain as an Installment Sale.

See also Reducing Taxes - Bogleheads.org.

In short: probably not. Enjoy the <10% tax on the $800K gain.
denovo
Posts: 4533
Joined: Sun Oct 13, 2013 1:04 pm

Re: More than $500K profit on sale of primary residence

Post by denovo »

jazzmania wrote: Sun Aug 02, 2020 2:03 am I've lived in my house for 10 years. Selling it this month will net me a gain of ~800K. Including the Net Investment Income Tax (NIIT), the overall tax rate will be ~25% on $300K. Is there a way to avoid this tax?
You could sell the house for 300k less
"Don't trust everything you read on the Internet"- Abraham Lincoln
ChiKid24
Posts: 329
Joined: Fri Aug 09, 2019 3:43 pm

Re: More than $500K profit on sale of primary residence

Post by ChiKid24 »

jazzmania wrote: Sun Aug 02, 2020 2:03 am I've lived in my house for 10 years. Selling it this month will net me a gain of ~800K. Including the Net Investment Income Tax (NIIT), the overall tax rate will be ~25% on $300K. Is there a way to avoid this tax?
First, make sure you are properly calculating the gain. Did you have any remodeling or improvements done on the place? If so, those increase your tax basis. Did you have any major expenses incurred to sell the propery? Remember your agent's commission is subtracted from the sale value.

The charitable contribution recommendation above is a good one. Are you familiar with a DAF? Essentially you put a large chunk ($300k) in a Donor Advised Fund that you control and invest at an institution like Fidelity. The funds grow tax free and can be used by you to make charitable donations for the rest of your life!
xerxes101
Posts: 357
Joined: Sat Oct 14, 2017 11:25 am

Re: More than $500K profit on sale of primary residence

Post by xerxes101 »

ChiKid24 wrote: Sun Aug 02, 2020 6:20 am The charitable contribution recommendation above is a good one. Are you familiar with a DAF? Essentially you put a large chunk ($300k) in a Donor Advised Fund that you control and invest at an institution like Fidelity. The funds grow tax free and can be used by you to make charitable donations for the rest of your life!
So if one contributes 300K to a DAF as you suggest above, that 300K is written off immediately which is great. My question is as this money grows to say hypothetically speaking to 400K over a 5 year period, what sort of tax treatment does that extra 100K get when the money is finally donated to the actual charity? Do you get 100K of additional write off since the actual money donated is now 400K?
User avatar
FiveK
Posts: 10285
Joined: Sun Mar 16, 2014 2:43 pm

Re: More than $500K profit on sale of primary residence

Post by FiveK »

xerxes101 wrote: Sun Aug 02, 2020 6:51 am So if one contributes 300K to a DAF as you suggest above, that 300K is written off immediately which is great. My question is as this money grows to say hypothetically speaking to 400K over a 5 year period, what sort of tax treatment does that extra 100K get when the money is finally donated to the actual charity? Do you get 100K of additional write off since the actual money donated is now 400K?
No.

You get the benefit of tax free growth allowing you to support the charities of your choice (within the DAF guidelines).
Gill
Posts: 6679
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: More than $500K profit on sale of primary residence

Post by Gill »

jazzmania wrote: Sun Aug 02, 2020 2:03 am I've lived in my house for 10 years. Selling it this month will net me a gain of ~800K. Including the Net Investment Income Tax (NIIT), the overall tax rate will be ~25% on $300K. Is there a way to avoid this tax?
Give the house to a donor advised fund.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
User avatar
Watty
Posts: 20646
Joined: Wed Oct 10, 2007 3:55 pm

Re: More than $500K profit on sale of primary residence

Post by Watty »

jazzmania wrote: Sun Aug 02, 2020 2:03 am I've lived in my house for 10 years. Selling it this month will net me a gain of ~800K. Including the Net Investment Income Tax (NIIT), the overall tax rate will be ~25% on $300K. Is there a way to avoid this tax?
It is unlikely to make sense but just for brainstorming you might be able to take a sabbatical for the rest of the year to reduce your overall income for 2020 since that could reduce the NIIT in some situations.

Of course giving up a lot of income to save a little taxes likely does not make sense even if the numbers work.
MathIsMyWayr
Posts: 2256
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: More than $500K profit on sale of primary residence

Post by MathIsMyWayr »

Gill wrote: Sun Aug 02, 2020 9:19 am
jazzmania wrote: Sun Aug 02, 2020 2:03 am I've lived in my house for 10 years. Selling it this month will net me a gain of ~800K. Including the Net Investment Income Tax (NIIT), the overall tax rate will be ~25% on $300K. Is there a way to avoid this tax?
Give the house to a donor advised fund.
Gill
Just like appreciated stocks? I hope the house is a small portion of OP's NW.
av111
Posts: 104
Joined: Mon Jan 26, 2015 1:27 pm

Re: More than $500K profit on sale of primary residence

Post by av111 »

OP

Don't forget state taxes. You can list the improvements that you have made and add the cost of those to the price you paid. That will reduce the profit and the tax

Looking at how you asked about saving taxes, I don't think charity was in the plan. I don't see how you would get more money using DAF
AV111
LSLover
Posts: 216
Joined: Thu May 19, 2016 1:39 pm

Re: More than $500K profit on sale of primary residence

Post by LSLover »

Consider Charitable Remainder Trust:
https://www.estateplanning.com/Understa ... er-Trusts/
quantAndHold
Posts: 5007
Joined: Thu Sep 17, 2015 10:39 pm

Re: More than $500K profit on sale of primary residence

Post by quantAndHold »

Focus on the $725k post tax profit instead of the $75k in taxes?

Not trying to be snide, I’m sitting on a similar gain, and will have to pay the tax at some point. But if you’re paying a lot of tax, it’s because you just made a lot of money, and the tax rate on this is low by about any standard.

I’d rather have it this way than *only* have a $500k gain, for example.
Yes, I’m really that pedantic.
surfstar
Posts: 2241
Joined: Fri Sep 13, 2013 12:17 pm
Location: Santa Barbara, CA

Re: More than $500K profit on sale of primary residence

Post by surfstar »

Congrats. Great problem to have.

Sell it for $300k less and it won't be an issue?
User avatar
grabiner
Advisory Board
Posts: 27920
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: More than $500K profit on sale of primary residence

Post by grabiner »

ChiKid24 wrote: Sun Aug 02, 2020 6:20 am The charitable contribution recommendation above is a good one. Are you familiar with a DAF? Essentially you put a large chunk ($300k) in a Donor Advised Fund that you control and invest at an institution like Fidelity. The funds grow tax free and can be used by you to make charitable donations for the rest of your life!
Note that there is a limit to the amount you can deduct as a charitable contribution; if you donate $300K, you might not get to deduct it all this year.
Wiki David Grabiner
Carefreeap
Posts: 2858
Joined: Tue Jan 13, 2015 7:36 pm
Location: SF Bay Area

Re: More than $500K profit on sale of primary residence

Post by Carefreeap »

quantAndHold wrote: Sun Aug 02, 2020 9:56 am Focus on the $725k post tax profit instead of the $75k in taxes?

Not trying to be snide, I’m sitting on a similar gain, and will have to pay the tax at some point. But if you’re paying a lot of tax, it’s because you just made a lot of money, and the tax rate on this is low by about any standard.

I’d rather have it this way than *only* have a $500k gain, for example.
This.

Congratulations OP!

DH and I are likely to have the same "problem" when we sell our Bay Area house.
Every day I can hike is a good day.
Flora
Posts: 112
Joined: Sat Mar 26, 2016 6:19 am

Re: More than $500K profit on sale of primary residence

Post by Flora »

Invest the $300k gain piece into a Qualified Opportunity Zone to defer the gain and reduce the taxable portion. Consider any state tax implications.
donaldfair71
Posts: 633
Joined: Wed Mar 06, 2013 4:15 pm

Re: More than $500K profit on sale of primary residence

Post by donaldfair71 »

denovo wrote: Sun Aug 02, 2020 4:02 am
jazzmania wrote: Sun Aug 02, 2020 2:03 am I've lived in my house for 10 years. Selling it this month will net me a gain of ~800K. Including the Net Investment Income Tax (NIIT), the overall tax rate will be ~25% on $300K. Is there a way to avoid this tax?
You could sell the house for 300k less
Please let me know if this is your decision!
User avatar
JonnyDVM
Posts: 2265
Joined: Wed Feb 12, 2014 6:51 pm
Location: Atlanta, GA

Re: More than $500K profit on sale of primary residence

Post by JonnyDVM »

Unless you have tax deferred space available I think you’re stuck. That’s a nice profit for a decade. Pay the taxes and be proud. Realistically the real estate exemptions make for a pretty modest tax imo. Not sure what other investments get such kid glove tax treatments.
I’d trade it all for a little more | -C Montgomery Burns
novemberrain
Posts: 488
Joined: Wed May 09, 2018 12:26 pm

Re: More than $500K profit on sale of primary residence

Post by novemberrain »

jazzmania wrote: Sun Aug 02, 2020 2:03 am I've lived in my house for 10 years. Selling it this month will net me a gain of ~800K. Including the Net Investment Income Tax (NIIT), the overall tax rate will be ~25% on $300K. Is there a way to avoid this tax?
Doesn’t CA have some exemption if you use the sale money to buy another house?
babystep
Posts: 244
Joined: Tue Apr 09, 2019 9:44 am

Re: More than $500K profit on sale of primary residence

Post by babystep »

Flora wrote: Sun Aug 02, 2020 10:44 am Invest the $300k gain piece into a Qualified Opportunity Zone to defer the gain and reduce the taxable portion. Consider any state tax implications.
+1. https://www.irs.gov/credits-deductions/ ... -questions
123
Posts: 6387
Joined: Fri Oct 12, 2012 3:55 pm

Re: More than $500K profit on sale of primary residence

Post by 123 »

Sell it to me for your basis and I will take the tax hit for you.
The closest helping hand is at the end of your own arm.
mrsbetsy
Posts: 271
Joined: Mon Jun 26, 2017 12:16 am

Re: More than $500K profit on sale of primary residence

Post by mrsbetsy »

In those 10 years did you put on a new roof or do any other improvements?

We are in the same boat here in the Bay Area and we keep careful receipts of everything allowable for that day when we do sell.

Congrats on a good runup.
Topic Author
jazzmania
Posts: 4
Joined: Sun Feb 23, 2020 5:51 pm

Re: More than $500K profit on sale of primary residence

Post by jazzmania »

Thanks everyone who had helpful suggestions.

Those of you who made snide remarks didn't think about the house I'm moving to. My new primary residence costs about the same as the house I'm selling. Both appreciated roughly the same amount in the past decade. So this is a $75K tax liability for a gain that's practically only on paper.
Starfish
Posts: 1982
Joined: Wed Aug 15, 2018 6:33 pm

Re: More than $500K profit on sale of primary residence

Post by Starfish »

On the same forum where we have topics about how to save 5$ people suggest donating hundreds of thousands? SMH...
denovo
Posts: 4533
Joined: Sun Oct 13, 2013 1:04 pm

Re: More than $500K profit on sale of primary residence

Post by denovo »

jazzmania wrote: Mon Aug 03, 2020 12:55 am Thanks everyone who had helpful suggestions.

Those of you who made snide remarks didn't think about the house I'm moving to. My new primary residence costs about the same as the house I'm selling. Both appreciated roughly the same amount in the past decade. So this is a $75K tax liability for a gain that's practically only on paper.
Unless you paid cash for your house that is not true
"Don't trust everything you read on the Internet"- Abraham Lincoln
Post Reply