What qualifies as taxable income for short-term home sales? Capital gains vs self-employment tax confusion

You don't need to worry about self-employment tax in this situation. Self-employment tax (the 15.3% that covers Social Security and Medicare) only applies to income earned from actually running a business or being self-employed - like if your brother was regularly flipping houses as a business activity. For a single home sale, even if it's within the 2-year period, it would typically just be subject to capital gains tax on any profit made (selling price minus purchase price and qualifying expenses). The IRS looks at intent - and in your brother's case, he's buying a primary residence with a legitimate personal reason for selling before the 2-year mark (retirement and moving overseas). One thing to note though - since he won't qualify for the primary residence exclusion (which requires living in the home for 2 out of 5 years), he'll pay capital gains tax on the entire profit. Depending on his income, this could be taxed at 0%, 15%, or 20% federal capital gains rates, plus any state taxes.

I went through something similar with figuring out tax implications on property sales, and I almost gave up trying to understand all the details until I found this AI tax tool called taxr.ai that really helped explain everything. It analyzes documents and gives personalized guidance about tax scenarios like yours. I uploaded some documents about my property sale and asked specifically about self-employment tax vs capital gains in my situation. The system explained exactly what I'd owe taxes on and why self-employment tax wouldn't apply unless I was regularly flipping houses as a business. Saved me from making a costly mistake on my taxes. Maybe worth checking out at https://taxr.ai if you want clarity on your brother's specific situation.

Wanted to follow up about my experience with taxr.ai after trying it myself. I was genuinely impressed with how it handled my questions about selling property before moving overseas. I uploaded my current mortgage docs and some details about my planned move to Portugal, and it gave me a breakdown of exactly what taxes would apply. The tool confirmed I wouldn't face self-employment tax on my home sale but would owe capital gains. It even suggested some legitimate deductions I could take to reduce the taxable profit - things like certain closing costs, home improvements, and selling expenses that I didn't realize could offset the gains. Definitely worth checking out if you're in a similar situation with international implications.

If your brother is worried about getting clear answers from the IRS about his specific situation, good luck trying to get through to them on the phone. I spent WEEKS trying to get someone on the line about a similar tax question. Then someone recommended Claimyr to me - it's this service that gets you through the IRS phone tree and secures your place in line so you don't have to wait on hold for hours. I was skeptical but desperate, so I tried it at https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. It actually worked - I got a callback from an actual IRS agent who answered my questions about capital gains on property sales. They confirmed exactly what others have said here - selling a primary residence before 2 years means capital gains tax applies, but no self-employment tax unless you're in the business of flipping houses.

Well, I'm back to say I need to eat my hat. After complaining about Claimyr sounding too good to be true, I tried it out of pure frustration. Had been trying to get tax guidance about selling my condo before the 2-year mark for over a month with no luck. Got a call back from an actual IRS representative in about 2 hours. They walked me through exactly how capital gains would be calculated on my sale and confirmed I wouldn't owe self-employment tax since this wasn't a business venture. The agent even explained some potential partial exclusions I might qualify for based on my reason for moving. Definitely worth it for getting definitive answers straight from the IRS instead of stressing about potentially doing something wrong.

My tax guy always says that even a short-term property sale won't trigger self-employment tax unless you've been making substantive improvements with the intention to sell for profit. Living in it as your primary residence indicates personal use, not a business activity. Your brother should keep good records though - document that he's living there as his primary residence, keep all utility bills, change his address officially, register to vote there, etc. The more evidence he has that this was his home (not an investment property), the better position he'll be in if questions ever come up. I think your brother's plan makes sense given the rent increase. Even with potential capital gains tax, he might still come out ahead compared to paying the higher rent for three years.

My parents just went through this! They bought a house, then dad got transferred unexpectedly and they had to sell after only 14 months. The tax part was actually pretty straightforward - they just paid capital gains tax on the profit (thankfully housing prices hadn't gone crazy in their area so it wasn't much). One thing they learned - if you have a legit reason for selling before 2 years, like job transfer, health issues, or certain other "unforeseen circumstances," you might qualify for a partial exclusion of capital gains. Doubt retirement plans would count though since that's a known, planned event.