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Capital Gains and Selling Real
Estate
Tax Changes and Effects
The new capital gains law allows homeowners to avoid
paying taxes on the first $500,000 of profit if they are
married or on the first $250,000 if they are single. You
must have lived in the home as your primary residence
for two of the last five years.
You are allowed to use the provision as often as you
like, as long as it fits in that two year period. Any
gains above the limit will be taxed at the new 20%
capital gains rate - down from the current 28 %.The old
law provided a $125,000 "one time" tax free
exclusion on profits for home sellers 55 or older. This
no longer is used, but those who have used it will be
allowed to use the new provisions without penalty. Under
the old law you could roll over gains if you bought a
more expensive house. If you sold a more expensive one
and purchased a less expensive one you were liable for
gains tax. Under the new law this provision is no longer
in effect.
Time Frames
If you bought and sold a home within 1 year, any capital
gains would be taxed as regular income. If bought and
sold between 1 and 2 years, gains would be taxed at the
long term capital gains rate. Filing an extension may be
a consideration, talk with a CPA for advice. Needing to
sell and move for specific reasons may have cause for
exclusion of gains tax prior to two year ownership.
Save Receipts
Always save receipts for home improvements in a
"house file".
If you don't qualify for the 2 year ownership rule, the
cost of improvements can be used to offset capital gains
tax you may have after the sale of your property.
Penalty-free IRA
The final package allows penalty-free early withdrawals
of up to $10,000 from an IRA to help with the down
payment on a first-time home purchase. The IRA can be
the home purchaser's own account or can be a parent's or
grandparent's.
Need Answers
If you are not sure what tax consequence you face when
selling real estate, consult with a CPA or tax attorney
and not a real estate agent
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