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Let’s Talk Capital Gains and Real Estate

But won’t I have to pay capital gains tax if I sell?

This is one of the most frequent questions I hear. And I hear it from literally all ages, all demographics, everything. Capital gains taxes are some of the most confusing aspects of selling a home and everybody seems to have a slightly different interpretation. What are capital gains taxes? First of all, very simply, it’s a tax that the IRS takes on the sale of an asset. So if you’ve made a profit on the sale of an asset, that is going to be taxed, just like your profits from anything else will be.

Long-term is if you’ve held the asset for more than a year. Short-term is if you’ve held the asset for less than a year.
Obviously, short-term gains are going to come into play if you’re flipping a house, but let’s just talk about regular home ownership. Selling a house, short-term gains are going to be, even if it’s your primary residence that you haven’t lived in for a full year, you’re going to take what you paid what you can sell it for, but then you’re going to subtract those things that you added or changed. And that’s going to be your gain. You’re only paying tax on the profit. So consult a tax professional, but that’s just going to be taxed as part of your regular income, just like you made money on anything else.
Long-term gains are paid on any home that you’ve owned for more than a year. Now, that’s going to include your primary residence and a rental property, second home, that sort of thing. And again, I’m going to tell you to consult a tax professional, because I am not a tax professional. Long-term gains become a little trickier because there is an exemption for your primary residence. And I’m not going to get in the weeds here, but that exemption is going to be basically $250,000 if you’re a single individual, and $500,000 If you’re a married couple filing jointly. So if you have lived in your home as your primary residence for two of the last four years, you are going to be exempt from those caps for the sale of your primary residence.

But what if it’s not your primary residence, it’s a rental property a second home, or something like that there are different tax rates based on your income for those capital gains, again, consult a tax professional, I’m not one, but those rates are gonna differ based on your income. And if you’re in a lower income tax bracket, like you make under $43,000 a year, you’re not going to pay gain at all. But the long and short story is capital gains are not as scary as they seem. And just make sure you have all the information before you’re putting your house on the market.
So if you’re curious about selling your home, I’d love to talk to you more about the actual sales process. But I am going to tell you to consult a tax professional if the gains and the tax on them are something that concerns you. If you need a good tax professional, I know lots and I’m happy to refer you as well.