COMMONLY ASKED QUESTIONS:
Q&A:Question: I am selling my house. Is buying another house the only way I won*t have to pay so much in taxes?
Answer: There used to be a rule that you could avoid any tax if you rolled over your proceeds from a sale into a new home of equal or greater value.
But that is NOT how it works today.There*s a good chance you may not owe any tax on your sale, based on current law.
For starters, you are eligible for a BIG FEDERAL TAX BREAK when you sell your home. There is no tax at all if you sell your home and your profit (i.e., the capital gain) is less than $250,000.00. If you are married, the capital gains exclusion is $500,000.00.
The one catch is that the home must have been your PRIMARY RESIDENCE (not a vacation home or rental or investment property) and you must have lived in it for at least two (2) of the past five (5) years.
It*s important to understand that what you paid for the house (your basis) is just the starting point for figuring out your profit/gain. You can also add to it the cost of any work (improvement and/or renovations) you did to the house that improved or extended the life of the house. This is called the adjusted cost basis. Subtract that amount from your sale price. If your profit/gain is below $250,000.00 for an individual or $500,000.00 for a married couple, then you do not owe any capital gains tax. If your profit is above those limits, you do owe capital gains tax. However, that capital gains tax is only on the amount that is above $250,000.00 for an individual or $500,000.00 for a married couple.
You can learn more about the TAX RULES when selling a home in IRS Publication 523 (irs.gov/pub/irs-pdf/ p523.pdf).
PLEASE NOTE: I am not a CPA, accountant or financial planner. This article shall not intended, or be deemed or used as legal advise from myself or my law practice. It is simply intended to answer some commonly asked questions and guide you to conduct further research and do your due diligence. The tax laws are changing and evolving everyday. Thus, I also urge all of my clients to consult with their licensed CPAs, accountants and financial planners before making ANY decision on the acquisition or transfer of any real estate assets, including but not limited to the transfer of such assets to LIVING TRUSTS or devising same by a LAST WILL & TESTAMENT.