6 Tips Re: Capital Gains

6 Tips Re: Capital Gains

Did you make money off the sale of your home?

Unfortunately, making money and paying taxes can seem synonymous at times.  If you sold a home last year and profited from that sale, you might be a candidate for capital gains taxation.  

The Aitken Home Team presents six points to consider in order to determine if you can expect to be taxed for capital gains:

Longevity

If you owned your home for a period of one year (or less) upon the closing date of your sales transaction, ask your accountant if you will be paying short-term capital gains tax which is linked to your specific income tax bracket.  If you sold your home and you owned it for a period of time greater than one year, you might be faced with long-term capital gains tax where rates range from 0-20% and tend to be lower than short-term capital gains.

What’s in YOUR Wallet 

How much did you profit from the sale of your home?  The final sale price doesn’t matter as tax isn’t based on the AMOUNT of the sale.  It is based on the percentage you were able to pocket FROM the sale.  A home selling for one million dollars could be taxed nothing if no income was gleaned from the sale.  If you sold a home for $340K and profited $40,000, then it is likely you will be taxed on your handsome profit.  

Investment

If you remodeled the home you sold, you might be able to close the gap between your purchase price and your selling price with the cost of updates.  This means you might be exempt from paying capital gains or that the amount of the tax could be drastically reduced.  

Related: “Redfin: Friend or Foe?” 

Married

You must collect a base amount of income in order to pay capital gains.  The rate you pay will increase as your income increases and can vary depending upon your marital status.  

Investment

For investors, home sales are considered inventory rather than assets, and all profits are taxable.  If you are a “flipper”, you cannot roll profits into your next project.  Sorry, Charlie!

Primary Residence

You might be able to catch a break if your home was your primary residence and you lived there for at least two years out of a five-year period before you closed.  Single homeowners/sellers only have to worry about sales exceeding $250,000 and married couples don’t need to be concerned unless their sale totaled above $500,000.  If the home you sold was a vacation or rental home, you cannot exempt yourself and will be taxed with either short or long-term capital gains.  

For more information, contact The Aitken Home Team today!

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Phil Aitken, Owner/Broker
Phil Aitken is the Owner/Broker with Your Home Sold Guaranteed Realty - Phil Aitken Home Team and has over 13 years of Real Estate experience. Phil’s faith and desire for his family’s continued security fuel his business growth and leadership. The Phil Aitken Home Team continues to profoundly impact the people of Jacksonville via supporting several faith-based organizations. Phil gives back a portion of every real estate transaction to The Tim Tebow Foundation and Rethreaded. Find Phil's full story here.