While the last time there was a significant change to the rules when selling a home occurred in 1997, many people seem to mix the old and ‘new’ rules when trying to figure out whether the sale of their home is taxable or not. Here is a brief refresher, compliments of Tim Steffen writing in Investment News1.
Allowable gains: When selling a primary residence, the first $250,000 of taxable gain ($500,000 for a couple) is excluded from taxes. Period. No exclusions for buying another home or even the requirement to buy another home. Any gain in excess of $250,000 (or $500,000 for a couple) is treated as a taxable capital gain. (While losses are not deductible, other capital losses – such as from the sale of a stock or mutual fund – can be applied to offset gains.)
Residency: The only other requirement is that the home has to be owned and used as a primary residence for two of the last five years prior to the sale.
Death of a spouse: “If a married couple meets the two-year requirement, but then one spouse dies, the survivor has two years to sell the home and still qualify for the full $500,000 exclusion. After that, the lower $250,000 exclusion applies.”
1 Steffen, Tim. “Tax Law Pertaining to Home Sales Still Confuses Many.” InvestmentNews, 5 Nov. 2018, pp. 18–18.
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