I’ve got some advice to share with you today about how you can avoid paying capital gains taxes on the sale of your home. Buying a home will be one of the largest investments of your life, so it’s good to know that there are some advantages to selling that property.
First off, what are capital gains? Items like cars, stocks, and bonds are all called capital assets. So is a home. When you sell an asset for more than you paid for it, the profit is called a capital gain. When you sell a car for more than what you paid, you have to report that to the IRS, who will tax you on that amount. However, homes are excluded from this capital gains tax, provided that you qualify.
Now, full disclaimer: I am not a CPA, I am just your Realtor. Double check all of this information with your CPA before doing anything.
What do you need to do to qualify for a capital gains tax exemption? First, you have to have owned the house for at least two years. You can also qualify for the exemption if you have lived in the home as your primary residence for at least two of the last five years. They don’t even have to be consecutive years. Finally, you can only use this exemption once every two years. If you’re planning on using this exemption in the future, I advise you to keep a record of how much you paid for the home and how much you’ve spent on improvements.
How much can you exempt? The amount depends on how you file. If you’re single, the exemption goes up to $250,000. For married couples, that amount doubles to $500,000. To find out how much your capital gains are, subtract your purchase price by your sale price.
There’s been a recent change in the rules which allows exemptions on special circumstances, such as a spouse’s death.
I wrote a book recently recalled“How to Buy a House in Houston, TX” that I’d be happy to get you a free copy of. If you want one or if you have any other real estate-related questions for me, don’t hesitate to reach out and give me a call or send me an email. I would love to hear from you.