Avoid Taxes on Capital Gains on Real Estate
Capital gains taxes can apply to investments, such as stocks or bonds, and tangible assets like cars, boats and real estate.
The money you make on the sale of your home might be taxable. Here’s how it works and how to avoid a big tax bill.
The good news about capital gains on real estate
The IRS typically allows you to exclude up to:
– $250,000 of capital gains on real estate if youʼre single.
– $500,000 of capital gains on real estate if youʼre married and filing jointly.
The bad news about capital gains on real estate
Your $250,000 or $500,000 exclusion typically goes out the window, which means you pay tax on the whole gain, if any of these factors are true:
-The house wasnʼt your principal residence.
-You owned the property for less than two years in the five-year period before you sold it.
-You didnʼt live in the house for at least two years in the five-year period before you sold it.
-You already claimed the $250,000 or $500,000 exclusion on another home in the two-year period before the sale of this home.
-You bought the house through a like-kind exchange in the past five years.
-You are subject to expatriate tax.
-Short-term capital gains tax rates typically apply if you owned the asset for less than a year.
-Long-term capital gains tax rates typically apply if you owned the asset for more than a year.
How to avoid capital gains tax on a home sale
- Live in the house for at least two years.
- See whether you qualify for an exception.
- Keep the receipts for your home improvements.
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