Dear Egghead: I just sold my home. What capital gains taxes will I need to pay?
Answer: A capital gains tax is the amount you’re assessed on the profit you make from selling an asset. The taxes apply to real estate, stocks, cars and boats, among other things.
Luckily there are exemptions that may cover your situation regarding the sale of your home.
Gains of up to $250,000 can be excluded from your income. If you filed a joint tax return with a spouse, the exemption is up to $500,000.
For example, if your home was purchased 10 years ago for $300,000 and you sold it this year for $650,000, you’ve profited $350,000. If you’re a single filer, you’d be taxed on the $100,000 not covered in the exemption. If you jointly filed with a spouse, the entire $350,000 is exempt.
To qualify for the exemptions I just mentioned, there are two tests — the ownership test and the use test. You qualify for the exclusion if you’ve owned and used that home as your primary residence for at least two out of the past five years leading up to the sale. You’re not eligible if you excluded a gain from the sale of a different home for 24 months before the sale.
As always, you should consult a qualified tax professional. More information on capital gain and loss is available in this IRS publication.
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