Q: I recently sold my house. How soon do I need to move into a new house to avoid having to pay taxes on the sale?

A: If you used and owned your house as your principal residence for at least 2 of the previous 5 years, the first $500,000 of gain ($250,000 for single individuals) is exempt from tax. You do not need to purchase a new house or reinvest any of the money. Gain in excess of $500,000 is taxed at capital gain rates.

If you have not lived in your house for at least 2 of the past 5 years, all of the income is taxable, regardless of whether you reinvest in a new house. There are partial exceptions for sales necessary due to job transfers, etc., but check with me first to determine if your situation qualifies and how much of the gain will be taxable.

Q: I recently sold stock for a significant gain. Do I need to make estimated payments to avoid a penalty?

A: The rules regarding the amount of estimated taxes that must be paid to avoid a penalty are very complex. In general, if you have paid through quarterly estimates and/or withholding the lesser of 100% of last year’s tax or 90% of the current year’s tax there will be no penalty even if you owe additional tax with your return. However, I encourage you to call me with you individual situation to be certain.