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Visitor I

Taxes/capital gains on prize house

If I win a house through a raffle, and decide to sell the house and pay the prize tax, would I also have to pay capital gains? So let's say the house is worth $450,000. The house counts as income. So let's say my tax rate is 25%. Let's say I sell the house for $450,000. So I pay my taxes of $112,500 and take the rest of the money (minus 6% for realtors' fees), $310,500 and buy a different house with it. Will I then pay capital gains since I turned around and put every leftover dollar into the new house? Or might this qualify as a like-kind exchange?

 

Now obviously, I can live in the house 2 years, then sell it and avoid capital gains. But, I'm trying to explore different options.

1 Comment
Member II

Taxes/capital gains on prize house

No, it doesn't work that way at all.  If you pay tax on the $450,000 in income, the amount on which you paid tax  becomes  your cost basis in the house,.  Were you to sell it for $450,000 less costs of sale such as broker fees, you would actually experience a loss.  What you do with the  sale proceeds makes no difference.