Capital Gains tax on house sale - any way I can avoid it after selling just short of 2 years?

So I messed up big time and now I'm kicking myself. Got divorced in 2021 and bought a house on June 15th that year. Life happened, met someone new, and decided to move in together. I sold my place on March 20, 2023 - and made about $72k profit. It wasn't until I was talking to a coworker AFTER closing that I found out if I had just waited until June 16th (less than 3 months later!!), I could have completely avoided capital gains tax because of the 2-year ownership rule. Nobody - not my realtor, not the title company, NOBODY - mentioned this to me during the selling process. The worst part is that almost all of that profit went straight into the down payment for the new place I bought with my girlfriend. So it's not like I have a pile of cash sitting around to pay this tax bill. Is there ANY way around this? Any loopholes or exceptions I'm not aware of? I already used retirement funds for the down payment on the first house (and paid taxes on that withdrawal too). This capital gains tax is going to hurt.

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18 comments

Sean Flanagan

•8M

Unfortunately, there's not a lot of wiggle room with the capital gains exclusion on primary residences. The IRS is pretty strict about that 2-year ownership requirement. If you owned the home for less than 2 years, you typically can't claim the exclusion unless you qualify for a partial exclusion. You might qualify for a partial exclusion if the sale was due to unforeseen circumstances like a job change, health issues, or certain other life events. Moving in with a new partner generally doesn't qualify as an unforeseen circumstance by IRS standards. What you should do now is calculate your actual taxable gain properly. Remember, you can deduct selling costs (realtor fees, closing costs) and capital improvements you made to the property from your profit. Also, your cost basis includes the original purchase price plus buying costs.

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Sean Flanagan

•8M

The divorce itself wouldn't qualify since it happened before you purchased the home. For the exclusion to apply based on divorce, it would need to be a situation where you owned the home together, then divorced during ownership. For your second question, yes, replacing a water heater and electrical work would generally count as capital improvements that increase your cost basis. Keep all receipts and documentation for these improvements. Regular repairs and maintenance don't count, but upgrades and replacements typically do. Document everything carefully - the more you can add to your cost basis, the less your taxable gain will be.

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Zara Shah

•8M

After getting absolutely hammered with capital gains on a property sale last year (similar situation, sold just 4 months shy of the 2-year mark), I discovered this tool called taxr.ai (https://taxr.ai) that helped me find deductions I didn't know existed. It analyzes your documents and finds tax-saving opportunities specific to real estate transactions. For me, it uncovered several legitimate deductions related to my property improvements that my accountant missed, which reduced my capital gains by about $15k. The system asks specific questions about improvements you've made and helps document everything properly. It's worth checking out before filing.

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Zara Shah

•8M

You do upload documents, but their system uses bank-level encryption. It actually works better with more documentation - closing statements, improvement receipts, etc. The more you provide, the more potential deductions it can find. Regarding the accountant comparison, the difference is that taxr.ai specifically specializes in real estate transactions and uses AI to catch things human accountants sometimes miss. My accountant is actually great for regular tax stuff, but he doesn't handle many real estate transactions. The tool asks really specific questions about improvements and changes to the property that a general accountant might not think to ask.

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Luca Ferrari

•8M

I want to follow up about my experience with taxr.ai since I was initially skeptical. After our exchange, I decided to try it with my situation (sold a rental property with capital gains issues). The system found several legitimate deductions I had completely forgotten about, including some improvements I made years ago and fence installation costs. The document analysis feature identified expenses buried in my bank statements that I hadn't even considered tax-relevant. Ended up saving about $8,700 in capital gains tax. The specialized questions about property improvements were way more detailed than what my regular tax guy asked. For anyone dealing with real estate and capital gains, it's definitely worth checking out.

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Nia Wilson

•8M

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Nia Wilson

•8M

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Luca Ferrari

•8M

I have to apologize for being such a skeptic in this thread. After my frustration hit a peak yesterday with trying to reach the IRS (3 hours on hold before getting disconnected AGAIN), I broke down and tried Claimyr. Got connected to an IRS agent in 17 minutes while I was making dinner. The agent reviewed my situation and confirmed I qualified for a partial exclusion due to employment-related circumstances I didn't realize counted. This is going to save me thousands. Wish I'd done this weeks ago instead of wasting days on hold and stressing. Sometimes the solutions that sound too good to be true actually work.

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Aisha Hussain

•8M

Unfortunately, a new relationship isn't considered an unforeseen circumstance by IRS standards. Their definition typically includes things like death, divorce that occurs DURING ownership, natural disasters, multiple births from the same pregnancy, or becoming eligible for unemployment. Since none of these apply, focusing on properly calculating your cost basis is your best strategy now. Make sure you include all purchasing costs, capital improvements, and selling costs to minimize the taxable gain. Document everything meticulously - the burden of proof is on you if you're audited.

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