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How long do I have to reinvest capital gains from the sale of my primary residence?

OK, if that sounds easy, let's see how many variables I can throw in. I bought a Fannie Mae foreclosure house last September and undertook a host of extensive renovations myself. I couldn't finance the house and renovations through a mortgage, so my parents co-signed a line of credit that needs to be rolled into a mortgage before this September. After spending seven months subletting an apartment during construction, I moved in to my house. I attached utility bills and building permits to my '08 tax return to document that, for purposes of the first-time homebuyer credit, my project should be considered a site-built house with the applicable date for the credit being the day I moved in--I got the $8K grant as if I'd made a 2009 purchase (have to repay if it's not my permanent residence for three years). I'll be deploying to Iraq later this summer and am rushing to convert my loan into a mortgage before I leave town for pre-deployment training. But the refinance is going to cost me over $7000!!! I'm not happy about repaying all the fees I paid during my cash sale closing last year and am considering selling vice the refi. I plan to put the house on the market at a price to net me $15K after sales fees and construction expenses; for various reasons I'll refinance if I can't clear that amount. It is my understanding that if I sell, I would owe the IRS $8000 and roughly 25% of any capital gains (under my reading I don't qualify for home sales capital gains exemptions). However, I would put any money I save overseas and proceeds from this house into another fix-up foreclosure home when I return next summer. a) how can I minimize my tax liability and maximize my funds towards a new residence? b) if I can avoid cap gains tax and the credit pay-back by reinvesting in a new primary residence, how long do I have to reinvest? Will I be able to convince the feds that time spent for military service in a combat zone should be tacked on to that clock? c) I did most of the work, from demo'ing a pool in the backyard, replacing wood paneling with sheetrock, installing hardwood floors, relocating kitchen, etc. with my labor and the help of great friends. If I had bids for some of the projects I undertook, can I expense my labor to reduce capital gains? The profits aren't coming through speculation (not that I philosophically object to that), but through nine months of my blood and sweat. It doesn't seem right that I could deduct paying someone to texture my walls but get hit if I buy the sprayer and do it myself. d) should I be doing anything during the sale or refi to make something else in the process easier? Thanks for reading my novel, and I really appreciate any tips! Thanks for the advice. I'm asking here for ideas, previous experiences and hopefully some sources (I've checked IRS pubs but they, of course, don't expand on all the variables here). I'll be verifying whatever counsel I receive but can imagine some valuable feedback from this community.

Public Comments

1. Personally, this is so complex, that I would talk to a tax adviser, an accountant well versed in property tax law or an attorney also well versed. You do not want to make a decison based on what you get here.
2. You are behind the times. You will pay full CGT, it does not matter that you reinvest. You are thinking about laws that are like 10 years old. From what you state you need to refund the 8k and will owe about 2,400 is capital gains tax. And no, you can not deduct for your own labor in your house. Personally I think you are damn lucky to be ahead in this market, that is a really short investment, and you are 12,600 ahead. Most people would be in the red reselling in a couple of months like this. Have a pro do your taxes, you will have red audit flags popping up left and right.