If you don’t qualify for the home sale exclusion at all, you’ll have to pay tax on all the gain from the sale of your home. If you owned the home for at least one year, you’ll at least qualify for the long term capital gains rate, which is currently 15% for most taxpayers.
If you owned the property for less than one year, you’ll have to pay tax at the short-term capital gains rate, which is the same rate as for ordinary income-up to 35%, depending on your tax brackets. Ouch.
If selling means a huge tax bill, you may want to think about a possible alternative. For example, you could convert the home into a rental property and either hold onto it or exchange it for another rental property.
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