Home Sale - $250,000\$500,0000 Capital Gain Tax Exclusion

One homeowner can avoid capital gain taxes up to $250,000. The exclusion increases to $500,000 of capital gains if married and filing jointly. The homeowner is not required to buy a replacement home in order to be eligible for this exclusion. Homeowners can use the exclusions as often as every two years.

 

The old tax law allowed one-time $125,000 tax exclusion on capital gains for home owners that were 55 years of age or older. This exclusion only allowed these capital gains to be deferred. The home owners were required to purchase another property that was of greater value.

 

With this newer tax law from 1997, homeowners are never required to pay capital gains for their primary residence, as long as they meet all of the IRS’s guidelines. The requirements to qualify for this exclusion are as follows:

 

1. The home must serve as the taxpayers principal residence for a total of 2 years during the 5-year period ending on the date of the sale. The two years of residency do not have to be continuous. The IRS provides some exceptions for military service, disability, partial residence and other reasons.

 

2. The taxpayer cannot use this exclusion more than once in a two year time period. There are exceptions due to change in employment, illness, or other unforeseen circumstances. Some examples of unforeseen circumstances as given by the IRS are as follows: natural disasters, acts of war, acts of terrorism, change in employment or unemployment that left you unable to meet basic living expenses, death, divorce, separation, or multiple births from the same pregnancy.

 

3. If a married couple is filing jointly, only one of the spouses needs to meet the 2-year ownership requirement.

 

  

 

 

Pat Egan is the Broker and Owner of Egan Real Estate in Ardmore, Pennsylvania. Pat sells Main Line Real Estate . Pat has been investing in real estate since 1993. He grew up in construction, and has a good basic understanding of what is needed to make a  property work as an investment. Pat has a degree in Electrical Engineering, which he practiced for 6 years. Pat has been helping people buy and sell real estate since 2003. His engineering background helps when analyzing properties for his clients. Please feel free to contact Pat with any questions you may have about this tax exclusion, or any of your real estate needs at pat@eganre.com .