Proceeds/Capital Gains Tax | Capital
on the Sale of Your Home
There is an exclusion from federal tax of up to $500,000 capital
gain when a couple sells a primary residence. The exclusion
for an individual is $250,000. This exclusion may not be exercised
again within two years of the last sale. The owner must have
occupied the property as a primary residence for at least
two years within the five years prior to the sale.
Permanent improvements to your home may be eligible for a
reduction of the capital gains tax you might owe. Keep all
home improvement receipts.
All property taxes on real estate that you own may be taken
as a deduction on your yearly federal tax return.
On rental property, taxes are considered a business expense,
NOT a personal tax deduction.
You may deduct all state and local government/school district
All mortgage interest is deductible up to $1,000,000. Any
interest on additional loans, such as a 2nd mortgage or equity
loan is deductible up to $100,000.
DISCLAIMER: The above information is provided as a preliminary
reference only. Some tax laws may have changed since this
printing. Consult your accountant or tax attorney for specifics
regarding the law.
An improvement is considered anything you do that enhances
the value of your home, prolongs the life, or creates a new
use for your home. The money you spent making these changes
are called Capital Improvements and can be added to your original
cost basis. This will help to reduce any capital gains tax
you may have to pay from the sell of your home.
Currently, a recent tax law allows for an exemption of net
profit from the sell up to $250,000 for individuals and $500,000
for married couples if the home was the primary residence
for a least two years within the last five years. However,
it is important to keep all receipts or invoices of improvements
in case Congress changes the law, or if you don't fit the
criteria of the law. Some of the following items are considered
capital gains improvements:
to the foundation of the building
door and openers
built in appliance
including removal of plantation
or heating systems
siding or brick
that when you are adding improvements that you don't want
to invest too much capital so as to not recoup your money.
Repairs are not normally considered tax deductible. Repairs
are a common occurrence when owning a home. It is important
to maintain the property, and to keep it updated and in good
condition. This will help to protect your investment, and
will make getting your home prepared for sale much easier.
Try not to put off repairs for a long extended time, this
often leads to more damage down the road.
You may receive credit during the closing of sale for repairs
on the home. It is much easier to use the money at this time
rather than use it to help offset the closing cost.