How Does a House Sale Affect Your Taxes
Brookline, NH Home Seller Has Questions
If you sell a home for a profit over what you paid for it, you will not have to pay taxes on this profit unless the gains exceed the threshold set by the IRS. For single filers, this is $125,000 and $250,000 for married taxpayers. Beyond this dollar amount, the remaining profit may be taxed as capital gains.
A Brookline resident was planning to sell her home. With the value of properties at a record high, she was hoping to make a nice profit on the sale. Her concern was how this profit would affect her tax bill.
Tax-Free Gains Requirements
While profits up to $125,000 or $250,000, depending on whether you are filing individually or as a joint couple, are not considered taxable there are some requirements that you must meet to be eligible for this. If you have already excluded gains from a home sale within the past two years you will be ineligible for this exemption. You must supply proof that you have owned the property for a minimum of two years and you must demonstrate that this has been your primary residence for at least two of the past five years. There are some exemptions to this, but in general the seller must meet these criteria to be able to enjoy the profits from a sale tax-free.
How to Avoid Capital Gains Tax on Your House Sale
It is a good idea to hold on to the property for at least two years to avoid being taxed on the profit as capital gains. If the house has to be sold in under two years due to a relocation for work, the IRS may consider this an exemption. The cost basis used to determine the profit not only includes the purchase price, but also any home improvements that were put into the property over the years. Maintaining a record of this can help you to avoid any capital gains tax on a sale of the property down the road.
The Brookline homeowner was pleased to hear that she met the qualifications to avoid paying capital gains tax on the sale of her property. She now plans to list her home in the spring.