When it comes to your primary residence or a 2nd home, there are certain requirements that must be met to avoid Capital Gains.
Delaware real estate broker, Kathy Sperl-Bell of Active Adults Realty shares with you the truth about Capital Gains taxes and under what conditions you should expect to pay them when you sell your home.
Will I pay a capital gains tax if I make too much profit on the sale of my home?
Hi. This is Kathy Sperl-Bell at Active Adults Reality in Delaware. Remember last month, we asked for some questions to be submitted, ones that we might be able to answer here on our Ask the Broker videos? This is a good question that came from Janet Cruz. Janet, what a wonderful problem to have.
I did some research and I came across a really comprehensive article in Bankrate. It talks about the fact that when you sell a primary residence today, you as an individual can make up to 250,000 in profit and pay zero capital gains tax. If you’re married, that amount doubles. You can make $500,000 in profit and not owe any capital gains.
Will some people still have to pay capital gains tax? They’re making a whole lot of profit. But some sellers, some of you, might be surprised by this, especially if it’s been a long time since you’ve been in your home.
Before May 7th of 1997, the only way you could avoid paying capital gains tax if you sold a property was to buy another property within I think two years, yes, within two years, that was more expensive. You actually deferred paying capital gains tax.
When the Taxpayer Relief Act of 1997 became law, that burden was eased for most of us, for millions of taxpayers.
I remember back in the early 1980s when I was working down in Houston, Texas, for Compaq Computer, several executives came over to Compaq from IBM in Boca Raton, Florida. Do you know how difficult it was for them to find a more expensive home to buy in Houston? Houston compared to Boca Raton? They bought some really, really large, elaborate homes.
But today, you do not have to buy another home with your sale proceeds and yours getting that tax exemption. But the property must be your primary residence. That’s one requirement. Two, it must have been your principal residence for two of the five years before you sell the property. That means that, frankly, you could do this every two years. There are some additional requirements, of course, but the other part, when your gain does not exceed the limit, you don’t even have to file anything with the IRS.
Now, for some, the bad news is second home sales took a hit. I’m not going to go into too much detail, but if you convert today the second piece of real estate to your primary home, you will still owe tax on part of the sale based on how long the house was used as a second home rather than your primary residence.
There’s still some stipulations to be aware of, but the good news is, for most of us, as a couple, as a married couple, you can make up to $500,000 in profit on the sale of your home and owe no capital gains tax.
Thanks for watching. Hope to see you soon, Janet.
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