The Capital Gains Exclusion

Back now with our special ‘Tax Time!’ And we’re going to wrap up this hour of the show with a quick talk about one of the best parts of the United States tax code. A part that really helps homeowners.

If you ever sold a home before, you know exactly what I’m talking about. It’s the capital gains exclusion. And it allows homeowners to avoid an enormous tax hit when they sell their house.


We’re going to talk about all of its details, but first, let’s point out that in the recent tax reform law the capital gains exclusion survived! No changes. So from this point on it still works the way it always has. Now let’s look at exactly what – that is.

When you own a home for some amount of time, typically that home appreciates in value. And if you hold it for a really long time, you could see a huge profit when you sell.

The capital gains exemption allows you to take that profit and pay no taxes on it, as long as you fit the criteria. Now here’s the thumbnail of how it works. But make sure you talk to your accountant and financial planner about all of this..because they know your financial picture, and what the exclusion can mean to you.

OK? Here we go:

If your filing married, you and your spouse can sell your home, and pay no taxes, on up to a half million dollars in profit. And if you file single, you will be able to sell your house and pay no taxes on up to a quarter million dollars in profit.

That is an enormous savings! But to qualify, you have to follow the rules.

For starters, it must have been your primary residence for at least, out of the last five years. So say that you bought the place back in 2013. Lived there for just a couple of years, then moved out and rented out the place. Well, you’d qualify! And the two years don’t have to be continuous. The time you lived there just has to add up, to two years. If so, you can still sell it and get the capital gains exclusion.

Also, you can only use the capital gains exclusion every two years. You need to know that.

Oh, and if you made more profit than the half million, or quarter million dollar caps? You might be able to bring that down….by showing receipts, proving you spent money improving the house.

Oh and by the way there is absolutely no requirement that you take that profit and pour it into another house when you sell. Have you ever heard of that? Well that’s the way the tax law used to be decades ago. But not anymore. You could sell the place, take the profits, tax free and then buy nothing else if you want. No more rules about what you do with that profit.

No there’s another part to the capital gains exclusion also. And it applies to widows and widowers. If a person’s spouse passes away, and they sell the house, they will still get the full $500,000 cap for two years. That’s nice. But – you still must have lived there for two out of the last five years, and again, you must not have used the capital gains exemption within the past two years. Oh and also? You can’t get remarried by the time you sell it. within those two years and still qualify.

But even so, that really helps a widow or widower avoid a big tax hit, if they move out after their spouse passes away.

And it’s not just that part of it. Because the entire capital gains exclusion is just plain nice. The idea of making that kind of profit without having to pay taxes on it is just wonderful. And it’s still provides a major incentive for home ownership in America.

Now it’s true that some of the other incentives have been whittled away under the new tax reform law. Like putting a $10,000 cap on the deductibility of state and local property taxes, starting with your 2018 return. And lowering the cap on mortgage interest to 750,000, down from 1 million, for all new mortgages. But as I said. The Capital Gains Exclusion – it’s still here. So when you sell your house, enjoy it! Because you’ll pay no taxes on a half million in profit if you file married, and a quarter million if you file single.

But oh and by the way though, if you do make much more profit than the half-mill or quarter mill Caps allow? Two words:

Well done!

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