by Roy Osborn
Homefoco.com
Simple, In a World of complicated
March 31, 2021
Generally, homeowners can avoid the teeth of capital gains taxes, however, understanding the rules is important. We are not in the tax accounting business here at homefoco.com, so always consult with your tax professional for advice on important tax issues. The rule of thumb is married couples can jointly profit $500,000 from the purchase and sale of their primary residence and completely avoid capital gains taxes (assuming you meet certain rules). Single people can only profit $250,000 before facing the same taxes. Many of the exclusions to this rule are aimed at home-flippers.
The IRS rules are here: https://www.irs.gov/taxtopics/tc701
The rates are sliding between 0%, 15%, and 20% according to Kiplinger, link below:
https://www.kiplinger.com/taxes/capital-gains-tax/602224/capital-gains-tax-rates-for-2020-and-2021
As with most taxes, there are methods used to avoid capital gains taxes. For example, Forbes has a list that includes, the primary residence exclusion, home renovation, 1031 Exchanges, and charitable giving. The link below shows some options that are used.
During periods of rapid home value appreciation, homeowners that stay in a home for an extended period of time may get trapped by the tax. For example, if you purchased your Fort Collins, Colorado home in the 90’s for $190,000 you may be shocked to learn the median listing price is now above $462,000, meaning you are potentially sitting on $272,000 of profit! If you’re single, you could now have a liability with Uncle Sam should you sell. This is a highly simplified example, you should consult with a tax pro for tax advice. Median listing price taken from Realtor.com at link below:
https://www.realtor.com/realestateandhomes-search/Fort-Collins_CO/overview
Have a great day!