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Notebook

FYI: Capital Gains Tax on a Home Sale





Home values have skyrocketed in the East Bay over the past decade and you may end up paying capital gains tax when you sell.


Here are some tips to limit liability:


Many homeowners who purchased their homes long ago have seen huge gains in the value. The gain may be more than the federal tax law's maximum exclusion on capital gains of $500,000 for married couples and $250,000 for single tax filers. Today, many go over the exclusion amounts because of inflation and especially in high-priced markets.


For the exclusion you must have lived in your home and owned it for at least 2 of the past 5 years. If these requirements have not been been met, you may want to delay a sale until you've satisfied the necessary use and ownership rules.


You'll hear the term "cost basis", which really means the total cost of buying the property. So, when you sell, the cost basis (what you paid for it) is subtracted from the net sales price to determine capital gains tax liability.


To calculate, take the purchase price. Many factors can increase or decrease this amount over time. Increases can be a result of additions, improvements, and repairs. Decreases can come from receipt of insurance payments due to theft or loss, and/or tax credit from home energy improvements.


For those planning on selling their home in 2024 you can consider a few strategies to discuss with your tax professional:


  • Contribute to a traditional IRA to reduce taxable income.

  • Selling securities at a loss to offset capital gains taxes owed on profits, called tax harvesting.

  • Donation to a Qualified Charitable Organization. Donating cash or appreciated property potentially can provide a tax deduction. Deductibility also depends on the type of charity, and also subject to a % of the taxpayer's adjusted gross income.

Again, we are not licensed to offer financial, tax or legal advice, so speak with your professional tax advisor about some of the tax changes for the 2024 tax year. And, if you've seen a significant increase in the value of your primary residence and plan on selling, develop a capital gains tax strategy as soon as possible before selling your home.

Source: Houselogic by REALTORS


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