November 29, 2022

Do You Have to Pay Capital Gains Tax on a Home Sale?

3 min read
Sales Tax Calculator

Your home is the biggest and proudest purchase of your life. The painstaking measures that you look for such as countless searching of property, contract negotiations, closing, & inspections help you to achieve the goal of homeownership. Now, it is the to sell but the question is what’s next? Did you know that your home is considered a capital asset, and it is subject to the capital gains tax?

If your home is appreciated in value, so the requirement is to pay the taxes on the profit. However, thanks to the act of 1997 “Taxpayer relief”, most of the homeowners are exempted because of this act. If it seems complex for you then, for ease you can consider using the Sales Tax Calculator that will help you to calculate the amount of tax due on a transaction.

Capital Gains Tax on Real Estate:

To be exempt, your home must be considered as a primary residency depending on the IRS (Internal Revenue Services) rules. These rules define that you just need to occupy the residence for at least two years from the tenure of five years. If you purchase a home and a dramatic rise in the value will cause you to sell it later, then it is required to pay the capital gains tax. Here, you can look up an online sales tax calculator that helps to let you know the amount of tax on the purchase.

Well, if you have owned your home for at least two years & meet all the primary residency rules then, you may owe tax on the profit in case if it exceeds the IRS thresholds. Single persons can exclude the amount up to $250,000 of the gain and married persons will fill a joint return that excludes up to $500,000 of the gain.

When Is a Home Sale Fully Taxable:

Everyone can’t take advantage of the capital gains exclusions. However, gains from the home sale are fully taxable when:

  • When your home is not the seller’s residence principal.
  • The property was acquired through the exchange of 1031 within five years.
  • The expatriate taxes are subjected to the seller.
  • When the property is not owned and it is used as the seller principal of residency for at least two of the five years.
  • If the seller sold another home within two years from the date of the sales and used it as the capital gains exclusion for that sale.

If it seems complex for you then, for convenience you can use the sales tax calculator to perform the tax calculations.

How to Avoid Capital Gains Tax on Selling Home:

If you want to reduce the tax bill on the sale of your home? So, for this need, there are a variety of different options that can assist you in reducing what you owe or avoid taxes on the selling of your house. When you own and lived for two of the last five years in your home then, you can exclude up to $250,000 of the gain from the taxes.

Adjustments of the cost basis can also help you to reduce the gains. If the fees & expenses are associated with the buying of the home, home improvements, and additions then, the cost basis can be increased. The resulting increase of the cost basis reduces the capital gains.

Capital decreases from the other investments, which can be used to offset the capital gains from the sales of your home. However, calculating the taxes might be tricky and complex sometimes. so, you can simply use the sales tax calculator to determine the amount of taxes that are due on transactions.

Conclusion:

The taxes on the capital gains can be substantial and fortunately, the tax relief act of the year 1997 provides some relives on the homeowners who meet the certain criteria of IRS. However, there are some exceptions for specific situations like divorce & military deployment. To make the tricky sales tax calculation easy you can consider the sales tax calculator.

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