In considering capital gains tax from the sale of a primary residence, the critical time frame is two years. Taxes on the gain, generally the difference between the price someone paid for their home and the price for which they eventually sold it, are not immediately collected if the sellers use the gain to purchase another house within 24 months. The IRS does allow homeowners to add the price of improvements to the cost basis for their property (to arrive at the adjusted cost basis). Gains tax is not forgiven forever; it simply is postponed until the next home is sold, at that point, it often is postponed again in the same manner, piling up untaxed profit on a string of homes.
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