Tax Consequences of Sale of Your Home
Real Estate is treated for tax purposes exactly like stocks and other similar investments. If a home is sold within one year of purchase, any profit is taxed as income. However, if the home is kept longer than one year, the profit is a long term capital gain, and is taxed accordingly. Currently, the long term capital gain tax rate is 20%.
However, if the property you are selling is your principal residence, upon sale you are exempt from the first $250,000.00 of capital gain if you are an individual, or $500,000.00 if you are married. The only rules:
- You must live in your home a minimum of two years
HOWEVER, there are allowable exceptions for certain types of earlier moves, such as job or health related issues. Always call me if there is any question about possible exceptions.
- You may use the exemption every two years.
- You do not need to buy another home, and may use the proceeds for any purpose.
One more point is important to mention. The IRS defines a “principal residence” as a home you have lived in for 2 of the prior 5 years. This fact makes it possible to sell your home at the best time for you and still benefit from the tax exemption. As an example, you can move out of your home and rent it to someone else for up to 3 years, and still get the $500,000.00 exemption!
As always, please feel free to call, 949-500-6365, email Frank@FrankDiLauro.com, or check us out on Instagram “FrankandSusan”
