What Are Capital Gains Taxes?

Here is what you need to know about capital gains taxes in real estate.

Today I want to talk about your potential for capital gains tax when you sell your home. Taxes are not typically something that we discuss in our videos; however with the surge in home prices, you do not want to get blindsided by the capital gains tax when you sell your home and take advantage of this great seller's market.

So what are capital gains taxes? Simply put, it’s a tax on the difference between the price you paid for a property and the price someone pays you when you sell it. The government does give us certain exemptions for this tax. If you file as "single" when you sell your home, you do not owe any capital gains tax unless you made an actual profit of more than $250,000. If you are married and file your taxes jointly, you can make a profit of up to $500,000 without being taxed.

That is a huge allowance, so most of us do not have to worry about paying tax on any capital gains. However, there are a few exceptions that could cause you to have to pay. Before I go over these exceptions, I would like to remind you that I am not a tax professional. If you want more details than I am able to share in this video, call your accountant or reach out to us and we will be happy to put you in touch with one.

“Most of us do not have to worry about capital gains.”

If you sell a property that is not your primary residence, it is subject to capital gains taxes. That includes investment properties and vacation properties. You want to own these properties for at least a year to minimize the tax rate; however, any actual profit that you make will be taxed based on your filing status and income level.

You will also have to pay capital gains if you have not occupied your primary residence for at least two of the last five years prior to selling. You can deduct expenses and fees from your gross profit in an effort to minimize the tax, but you will still have to pay tax on the actual profit.

If you are thinking about selling your home, give us a call. We can help you determine the value of your home and if you would be subject to capital gains when it sells. If you have a tax-related question we cannot answer, we will put you in touch with someone who can.