This is how you determine the taxes you need to pay during a home sale.
Many people ask about the amount of taxes they would need to pay after selling their home and the time frame for reinvesting the funds. To address this topic, today I’m sharing important information about property taxes and home sales.
If you sell your primary residence and have lived in the home for at least two out of the last five years, you can take up to $500,000 of capital gains tax-free as a married couple or $250,000 as a single person. There is no specific deadline for reinvesting the funds, and you can do it every two years if you choose.
In Southern California, property appreciation has exceeded $250,000 or $500,000 for many individuals. Once you surpass these thresholds, you will be subject to capital gains tax based on your tax rates. Your accountant can assist you in determining the exact amount. One important factor to consider is the “step up in basis” if a spouse has lived in the home and passed away.
“We can help you calculate the basis and also consider deductions for repairs and improvements made to the property.”
If the property value has increased by $500,000 and the spouse passed away a year ago, there may be limited capital gains. However, if the spouse passed away several years ago, this could impact capital gains, and the step-up in basis will be determined by the date of their passing.
We can help you calculate the basis and also consider deductions for repairs and improvements made to the property. It is advisable to consult with your accountant before selling your home, especially if you anticipate significant capital gains.
Moreover, if you are dealing with an investment property, the rules are different. When cashing out, you will be subject to capital gains tax. If you choose to reinvest the funds, you can do a 1031 exchange. This exchange allows you to defer your capital gains by rolling them into another property. There are specific rules surrounding 1031 exchanges that I will cover in a separate blog post.
If you have any questions regarding the amount of capital gains tax you might owe when selling your primary residence, feel free to call or email us. We will provide a detailed explanation based on your specific situation. We hope to hear from you soon.
