Capital Gains Tax

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Whether it’s tax season or not, how much you may owe in taxes is a concern for all Americans. Since we’re dealing with real estate, let’s talk about capital gains tax and how it applies to you. 

Capital gains are any profits resulting from the sale of an investment (Purchase Price – Sales Price = Capital Gain). If you ask the Internal Revenue Service (IRS), they will tell you nearly everything you own qualifies as a potential capital asset. However, capital gains most commonly apply to stocks and property sold for a profit.

When it comes to selling your home for a profit, you can exclude capital gains taxes of up to $250,000 if you file single, and $500,000 if you file married filing jointly. Here’s how you qualify:

  1. Owned and lived in the residence for at least two (2) years of the five (5) years before the sale of the property, and;
  2. Haven’t excluded a capital gain from another home sale in the two (2) years prior to the sale. (Basically, you can only use this exclusion for a home sale every 2 years.)

In the case of married couples, only one spouse must pass the ownership test. However, both spouses are subject to the residence rule as well as the home sale rule. Meaning both spouses must live in the residence for a total of 2 years but both are not required to be on the title.  

If you don’t qualify for the exclusion, your capital gain is subject to the tax percentage associated with your tax bracket. To get an idea of how much tax you will have to pay if you don’t qualify, check out this handy Capital Gains Calculator.

The tax rules as they relate to capital gains can be either simple or complicated depending on your specific situation.  If you want to learn more or have questions about buying or selling a home this year, give us a call at 615-933-1000 or email us at!

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