John Karadsheh
If you’ve owned your home for many years, chances are its value has risen significantly! While having equity is great, it is also important to understand how capital gains taxes may affect your profit.
WHAT ARE CAPITAL GAINS TAXES ON A PRIMARY RESIDENCE?
Capital gains taxes apply to the profit you make when selling your home. Fortunately, most homeowners benefit from the Section 121 exclusion, which allows you to exclude a large portion of those gains if you meet certain requirements. If you’re single or married filing separately, you may exclude up to $250,000 of profit from the sale of your primary residence. Married couples filing jointly can exclude up to $500,000.
If your gain falls under these limits, you may owe nothing. If your profit exceeds the exclusion, only the amount above the limit is taxable. The rate depends on your income and how long you’ve owned the home and so it is always best to consult a qualified tax professional for guidance.
WHAT CONDITIONS MUST BE MET TO QUALIFY FOR THE EXCLUSION?
- The property is your primary residence and listed as your home address on documents such as tax returns and driver’s licenses.
- You’ve owned the home for at least two of the past five years.
- You’ve lived in the home for at least two of the past five years (not necessarily continuous).
- You haven’t used the exclusion in the past two years.
- The home was not purchased through a 1031 exchange in the last five years.
WHAT ABOUT OTHER PROPERTIES?
The exclusion applies only to your primary residence and not vacation homes, rentals, or investment properties.
DOES THE GAIN NEED TO BE ROLLED INTO ANOTHER HOME?
You do not need to use the proceeds from your sale to purchase another home in order to claim the exclusion. If you’re thinking about selling, we’d love to walk you through the process from start to finish. From making sense of today’s market trends to getting your home ready to shine, we offer the resources, guidance, and decades of expertise to make the experience smooth and stress-free.
Our goal is to help you move forward with confidence and peace of mind. Reach out today to schedule your private, personalized consultation at (602) 615-0843.