Understanding Capital Gains on Primary
Homes
By Peggy Gachet
In 1997 capital gains taxes were updated to reflect:
$250,000 in capital gains on primary homes tax free for an
individual
$500,000 in capital gains on primary homes tax free for a
married couple filing jointly.
Let’s break down how that is calculated. Use the original purchase price of the
property then add major improvements. In many cases improvements made to ready
your house for the market may be used. Add those figures to the base purchase price
thereby establishing the adjusted basis.
Next take your sales price and subtract closing costs,
commissions and the adjusted basis to determine your taxable earnings. You are
taxed on earnings greater than those reflected in the table above based on your
income level and the duration the asset was held.
For most it is that simple. For those who move frequently
there are three very important caveats and limitations that are frequently
misunderstood. You must own the home for at least 24 of the 60 months leading
up to the sale. You must have lived in the home as your principal residence for
at least 24 of the 60 months leading up to the sale (the months do not have to
be consecutive) and lastly, you haven’t used the exclusion on another home sale
in the 2 years prior to this sale.
Years ago, my husband and I faced the loss of a
pension. Fortunately for us, we were
young enough to recover and build our own pension by exercising the very
program outlined in this blog article. It works! Especially if you can control
the urge to continually upgrade with each purchase. Try to find a home you can
improve while you live in it and your earnings potential grows. It is a great opportunity to build wealth but
requires discipline and intention. Are
you ready to take the next step. If so, interest rates become less important in
the big picture.. It’s worth exploring.
Is it time to call your Realtor and CPA?
