The single biggest asset many people have is their home, and in today’s real estate market, it’s not unusual to make a profit on the sale of a home. But if you sell your home for more than your basis in the property, you could face substantial capital gains tax.
Capital gains is calculated by taking the difference between your basis in the property and the sale price. Your basis in the property is typically the amount that you paid for the property, but your basis can increase if you’ve made substantial improvements to the property or decrease due to depreciation. For example, if you purchased your home for $200k ten years ago and you are now selling your home for $800k, you could be subject to capital gains tax on the $600k gain on the sale.
Capital gains rates can range anywhere from 0% up to 20%, depending on your tax bracket. You may, however, qualify for an exemption from capital gains tax on the sale of your home.
Based on the Taxpayer Relief Act of 1997, if you are single, you pay no capital gains tax on the first $250k you make when you sell your home; likewise, if you are married, couples pay no capital gains tax on the first $500k they make when they sell their home. The exemption can offer substantial savings to individuals and couples, provided that the following conditions are met:
Being aware and taking advantage of tax exemptions such as these can save you hundreds, if not thousands, of dollars in tax. Ward & Oehler, Ltd. offers a full range of title and real estate services. Schedule an appointment to speak with one of our attorneys by calling (507) 288-5567 or booking an appointment online.