Selling your home: the capital gains exclusion
If you owned and lived in the home for at least two of the five years before the sale, up to $250,000 of the gain is excluded from income, or $500,000 for a married couple filing jointly. A single seller with a $400,000 gain is taxed on $150,000 of it: $22,500 of federal tax with $80,000 of other income.
The two tests
- Ownership: you, or your spouse when filing jointly, owned the home for at least 24 months of the five years before the sale.
- Use: you lived in it as your main home for at least 24 months of those five years; on a joint return both spouses must meet this test for the full exclusion.
The two periods do not have to be the same, but both must fall within the five years ending on the date of the sale.
The gain above the exclusion
The rest of the gain is a long-term capital gain if you owned the home for more than a year, taxed at the federal rates and by most states. The 3.8% investment income tax can apply to it, but not to the excluded part. Enter it in the calculator to add the state tax.
Source: IRS Topic 701, Sale of your home, and Publication 523. Estimates, not tax advice.
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