Capital Gains Tax Issues
Because your home is an asset, you may be subjected to a capital gain tax when selling your home. These facts may assist you in determining how capital gain tax will affect you:
Q: How much will I have to pay in taxes?
The IRS rules put into place in 1997 exempted from taxes capital gains on home sales for the following amounts:
- $500,000 exemption for married taxpayers filing joint returns
- $250,000 exemption for single taxpayers
3 Standards apply in order to meet this exemption:
- Ownership: you must have owned your home for at least 2 years out of the 5 years preceding the sale of your home.
- Use: you must have used the home as your place of principal residence for at least 2 years out of the 5 years preceding the sale of your home.
- Time Period: the exclusion can only be taken once every 2 years.
Q: Are there exceptions to the 2 year rule?
Yes, the exception is:
If your sale of residence is due to change of employment, health reasons, or other unforeseen circumstances (as defined by the IRS), your total exemption will be prorated.
Special situations that will be considered:
- If your spouse dies, you may claim the full $500,000 exclusion if you sell your home within one year of your spouse’s death.
- If you don’t sell within one year of your spouse’s death, you are entitled to the $225,000 exclusion (unless you remarry and file jointly).
The IRS has information on taxation issues involving the sale of your home on the following website:
For more specific information on capital gains and how it can affect you, please call Steve or your tax professional. Steve is educated with the capital gain tax laws and will assist you in determining the best solutions for you.