Learn to exclude capital gains taxes on your home sale and save money.
Are you thinking of selling your home and wondering about paying taxes after your home sale? Many sellers are missing out on potential savings because they’re unaware they can apply for an exemption from the IRS.
First, what is capital capital gains tax? This tax applies to the profit you make when you sell your house. Simply put, your profit is the difference between what you paid for your home and what you sell it for. The good news is you can subtract certain costs from your profit. This includes all the renovations and upgrades you did to the house over time, including the cost of getting your house ready to sell, like closing costs. This total is called your cost basis.
“You don’t necessarily have to pay capital gains tax when you sell your house.”
But I have even better news. The IRS offers an exemption that allows most homeowners to exclude a big chunk of their profit from capital gains taxes. If you’re single, you can exclude $250,000 of gain; if you’re married and filing jointly, you can exclude up to $500,000.
To qualify for this exemption, you need to meet three criteria:
- Ownership. You must own the home for at least two years.
- Use. It should have been your primary residence for at least two of the last five years before selling.
- Exclusion frequency. You haven’t used the exclusion in the last two years.
If you meet all these requirements, you might not owe any capital gains tax at all. However, if your profit exceeds these limits, you could be responsible for paying tax on the excess amount. It’s a good idea to consult with your CPA or accountant to ensure you calculate your cost basis correctly and include everything that’s allowed.
I hope this information helps reduce your stress about selling your home. You don’t necessarily have to pay capital gains tax when you sell your house. More than likely, if you meet the three criteria I mentioned above.
It’s a common misconception that you must roll your profit into the next house. Instead, you can take a part of your profit and put it into your next home or other things, whether that’s saving it or even planning a trip around the world.
Always talk with your tax professional so that you know exactly where you stand. That way, you can enjoy the rewards of your sale and keep as much of your hard-earned money as possible. If you have any questions, don’t hesitate to reach out to me at (919) 759-6359 or send me an email at [email protected].