Capitial Gains Primary Residence exclusion.
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- Опубликовано: 7 фев 2025
- HOW TO GET THE PRIMARY RESIDENCE CAPITAL GAINS TAX EXCLUSION
In order to understand capital gain, we first need to understand tax basis. Your tax basis is the cost of buying, building or improving the property. Assume you pay $200,000 for a property. You incur $5,000 in closing costs. Then you spend $45,000 on home improvements. In that case, your tax basis would be $250,000. That’s what it cost you to buy and improve the property.
Assume you later sell the property for $500,000. You incur $50,000 in sales commissions, transfer taxes, and other sales expenses. You then subtract your $250,000 basis. Your capital gain would be $200,000.
Once you figure out your capital gain on a property, the next step is to calculate your taxes. In our example, if you earn a $200,000 profit, you would likely owe $30,000 in capital gains taxes because the capital gains tax rate is currently 15% for most taxpayers.
In 2013, there was an additional 3.8% net investment income tax that was added by the federal government to help pay for changes to Medicare. This new tax applies to single taxpayers who earn more than $200,000, or married taxpayers who earn more than $250,000. You may need to pay an additional $7,600 investment income tax in this scenario.
THE PRIMARY RESIDENCE EXCLUSION
If the property is your primary residence, you have what’s called a principal residence exclusion. This means that a certain portion of the capital gain is excluded from tax. Married couples can exclude $500,000 of capital gain from tax. Individuals or married couples filing a separate tax return can exclude $250,000 of gain from tax. In the example above, the entire $200,000 would be excluded from tax if this was your primary home. This means that you'd save at least $30,000 by using this exclusion (no capital gains tax and no 3.8% investment income tax)!
TO QUALIFY FOR THIS EXCLUSION, YOU MUST LIVE IN THE HOME AS YOUR PRIMARY RESIDENCE FOR TWO OUT OF THE LAST FIVE YEARS.
YOU DON'T HAVE TO USE THE PROCEEDS TO BUY ANOTHER HOME.
YOU CAN USE THE EXCLUSION ONCE EVERY TWO YEARS.
If you have a large capital gain on your property, why don’t you consider selling it now, and pocketing the proceeds tax-free? Then, you can purchase another home and do it all over again because there’s no limit on how many times you can get this exclusion! You just have to wait 2 years in between each sale and make sure that you live in the property as your primary residence.
THE EXCLUSION ONLY APPLIES TO PRIMARY HOMES
EXTRA CALCULATION APPLIES IF YOU CONVERT A RENTAL PROPERTY INTO A PRIMARY HOME.(SEE IRS PUBLICATION 523)
PLEASE NOTE: THIS LETTER AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION. FOR MORE INFORMATION ON ANY OF THESE ITEMS, PLEASE REFERENCE IRS PUBLICATION 523.
Source: CMPS Institute...................
Kristin Cooper
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Certified Mortgage Planner NMLS: 448315
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Best cost basis cap gains video I have seen. Simple and to the point. 👏
I appreciate that!
This is exactly I’m trying to find out now. And you described it very well. Thank you so much; you helped me so much with this video.
Awesome work. Thanks for sharing your talent.
My question is related to whether there are any capital gains tax exclusions if the proceeds are to be used to pay for a skilled/assisted living facility
It is confusing the 2 out of 5 years... does it mean we need to own the property for at least 5 years or not? For example if I bought a new construction home and I am living in it for 2 years, can I sell it and avoid capital gain tax? or do I have to keep it for 5 years?
My question exactly
You only have to live in it for two years to qualify for the capital gains especially on a primary residence the two out of five years comes in to play if it became or was a rental at any time
@@kristinloans thank you
I have the same question, does that mean if I lived in it for 2 years and then I decide to sell it at the 2.5 year mark… when you look at my address history I have lived in this house for more than 2 of the past 5 years so I should be good on capital gains?
What if we own 2 homes and live in them nearly equally during the year over the 5 year time frame? Can we claim one of them as primary when we go to sell?
Thanks so much for your discussion. I have a question:
What happens when you live in the house, make improvements, and then turn it into a rental, whereby you sell it as a rental property?
Great question you’ll want to reach out to your CPA as there is a formula that they have to follow around capital gains in the situation
Hello! Thank you for your video. We have lived in our house for 12 years we found a house we want to renovate to move into. After moving to the new house (which will be my primary residence). I want to fix my existing primary residence and sell it. Do I need to pay capital gain taxes if I sell my property within one year? If I qualify for the "2 out of 5 rule," do I need to report this when I do my taxes or it is not necessary? Thank you very much for your video! Have a blessed day!
KRISTIN, From what I researched your tax bracket has quite a factor if you pay federal and in CA state taxes too. You might not have any federal taxes if you don't make more than 42k and 2% state taxes in CA in that tax bracket! Does that sound correct? Of course, that's if you made more that the Fed/State excludes!
Hi Hec you will always want to reach out to a tax advisor to confirm
What if I’m filing married but filing separate and we did live there two out of five years to have to pay capital gains would it be under the $250,000 exclusion or would we still have to file joint this year to get any sort of exclusion?
What qualifies as a year... If i start renting it out August of 2023... Do i count August to August 2024 as a year or is Jan to December the "year". And if i live there majority of that year it counts (Jan to August)?
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Hmm
Hi Kristen thank you for the video I do have a question if they rented out the house for two of the five years will they still qualify for the exclusion.
Also does it have to be 5 years total owning the property
There is hardly any info on my situation where ever i look. I got a 1099-s for selling a portion of land of my primary residence in California . How do i report it. Or could it be that the proceeds are means to offset the cost basis of the main house when comes time to sell the main house at a future date.
Great question unfortunately there’s not a lot of information because each situation is different so you definitely want to make sure to reach out to your CPA
We are renting out our previous residence we lived in for 2.5 years. At 5 years of owning, I plan to sell. Will I be excluded from capital gains tax for any gain less depreciation for gains 500k or less if married filing jointly?
Many thanks well said !!!!
One question: if you have a loan balance (in my case, I have about $100,000 to go), do you subtract that before calculating the capital gain tax or after?
Awesome video! Thank you so much!
Its what you paid for the house--example: you owe 100K but your paid 200K. Your basis is 200K--IMO!
🔥❤️Great info, thank you!
what if the house was rented for few yrs and then becmae a primary resident (2Yrs). Ist he depreciation that we took for rental subtracted from cost basis?
You would want to confirm a CPA
Holy molly, sale closing cost is $50,000? Please verify if that is correct.
Assuming the seller meets the 2 of 5 year primary residence test, if the capital gain is rolled into the purchase of a new primary residence, is the gain still excluded if it over the $250K/$500K amount?
www.irs.gov/publications/p523
Hi,
I love your explanation. However, what happens when you sell your primary, qualify for the exclusion but you still receive a 1099s? This is my case. Sold a house for 163000 but bought it for 98000.
Definitely reach out to your CPA to discuss. That should not be the car unless there is something I’m unaware of
I have same question and same situation. Nobody answers this important question. I don't understand. Why?
You spoke too fast. Does your gain count as an income? Eg you earn a salary of 24000 per year and you sell your house in 2021 June for a gain of 500000. Will the gain be added to your income and then be taxed? When will you pay your capital gain tax, 2021 or 2022?
Yes. Capital gains WILL count as income, because it really is.
The gain will be in your tax return for year 2021.. i.e. will be calculated in 2022 when you file 2021 taxes
Do you have to own the property for 5 years prior to the sale? I have owned and occupied a property for going on 4 years would I still qualify for a exemption?
www.irs.gov/publications/p523
www.irs.gov/publications/p523
Question. I bought my home back in 1998 for $110K. Now sold for $285K. I’m single n live there over 20 years. Also my primary home. Do I exempt capital gain for single $250K??? Please help
you made 185k so that's is less that the 250 exempted so IMO i would say zero taxes!
Hi Kristin, thank you for all your videos.
We did our kitchen with brand new appliances and also did flooring for the house. But we lost the receipts. What should we do now to maximize the tax credit? What are our options.
Also we lived last 2 of the 5 year in our primary residence but we now we are in and out in the house for the last 5 month. We had to move because of our job relocation. Do we still qualify for the exclusion? Do we need any supporting documents for it?
Talk with a CPA but I’d call the stores to see if they have any records
Hello I just want to know my property i bought May 2012 and i live there till april 2021 than i move to USA for 2 year than i come back Australia for 6 months now again i m moving usa permanent so i am planning to sell my property after 2 year around 2025 total around 13 year old property i live in 8 year and 4 year rent so just want to know this situation Do i need to pay capital gain tax when i sell property and how much % if i buy from USA
Great question all situations are different. You definitely want to reach out to your CPA.
This question is exactly what i'm looking for. Information 5 years rule, what if you bought you home as primary for 10 years, rent the house for 5 years, move back in as primary residence 1 year, next, plan to sell the house to buy another one. The total basics approx 300k (purchased price, improvements, closing cost, commission, recapture depreciation..) sell price 1 million. What would be capital tax complication?. my CPA has no clue... ☹Thanks
What if their is a ELOC on the house? Do you only pay capital gains on the difference? For instance: 500k sales price - (150k first + 100k second) - 50k commissions and closing cost = 200k to be taxed?
Great question you’ll need to reach out to your CPA for a specific details such as this
I am about to sell my primary residence in order to purchase a new home. This is a home that I have occupied all my life. When I do sell can I use part of that money to purchase the new one right away? And worry about paying the capital gains taxes at the end of the tax year. Keeping in mind that I have to set some of that money from the sale aside to satisfy those taxes.
Great question you deafly want to reach out to CPA to find out all the specifics for your scenario
Hello. I live in Arizona and about 2 years ago I turned it into a rental property and its being rented ever since. Before it was rented, I lived in it for 2 years. I plan on selling this place next month. Do I still qaulify for the 2 out of 5 rule although the property has been being rented for the last 2 years?
www.irs.gov/publications/p523
Hi, my mom wants to sell her home she has lived in for 49 years, she's 84 years old on S.S. She bought the house for under 40K and it's now valued at over 500K. Other than the 250K exemption is there any other tax exemption ? It's a lake front property in a great location in Florida and this niche market has gone up considerably.
Check with your local state taxes but if she doesnt have income over, federal taxes should be zero.-----------------------------------------------------------What is the 2021 capital gains tax rate?
2021 Long-Term Capital Gains Tax Rates
Tax Rate 0% 15%
Single Up to $40,400 $40,401 to $445,850
Head of household Up to $54,100 $54,101 to $473,750
Married filing jointly Up to $80,800 $80,801 to $501,600
Married filing separately Up to $40,400 $40,401 to $250,800
Sorry for the late reply. Did not see this until now. You will always want to reach out to a tax advisor
IF YOU HAVE TO LIVE 2 OUT OF THE LAST 5 YEARS, DO YOU HAVE TO LIVE IN IT CONSECTUTIVE YEARS. IN OTHER WORDS, CAN IF LIVE IN IT 1 YEAR, OVER OUT AND THEN COME BACK IN 1 OR 2 YEARS AND LIVE IN IT AGAIN FOR ANOTHER YEAR.....
Does NOT have to be consecutive.
Sorry I did not see this comment before it does not have to be consecutive there’s a calculation for time rented
I purchased the house for $590k and sold it for $665. I sold the house within one month because I wanted to buy a house in a different location. What will the capital gain?
www.irs.gov/publications/p523
www.irs.gov/publications/p523
If I rented a home during a major renovation of my primary residence, are my monthly rent payments deductible against capital gains if I eventually sell my primary residence?
Great question, confirm with your CPA
Hi there.... great explanation on the capital gains... question... im selling a home that used to be my primary residence. I should qualify to be exempt but I'm right at the 5 year mark, depending on the closing date of the sale. I moved from this residence Nov 15 2019 & my current closing date to sell is Nov 18 2022... if I count backwards to 5 years, seems I'm short by 3 days of exactly when I vacated the property... would I no longer be exempt? could I move up my closing date to make sure I'm exempt? also my gain from the sale would be $133k (207 - 340) but due to my outstanding mortgage & I would get $180k (340-160) at closing... I assume only $133k would be exempt or would the $180k be exempt?
Hi Ms. Sobe you will want to contact an accountant or review the IRS website www.irs.gov/publications/p523
Hi! Do you offer any online tutoring services?
www.irs.gov/publications/p523
www.irs.gov/publications/p523
short and sweet! Thanks
Glad you liked it!
@@kristinloans appreciate ya!
If an unmarried couple sells a primary residence they own together for 400k will each be responsible for 200k? Does it matter if the title company issues 1 check or 2?
I'm mainly asking for tax purposes! Thanks
Great question. You will want to consult your tax advisor.
I just filed my taxes today and they told me that I cannot qualify for the exclusion because it was reported to the IRS and I got the 1099s. Therefore, I paid taxes on ot.
Was it a rental?
Primary home
Hi, I'm trying to figure out if it's the right time to sell. I bought my house a year and 2 months ago and the market went up this year. I inherited some land and was wanting to move there and build. (Or move a mobile home there while I built to be more specific) I bought my house for 150k and it's worth 230k now which after commission to my agent and other fees, the profits would help me do that tremendously. Would I have to pay Capital gains if I reinvested like that?
You would want to consult a CPA
So my wife and I just sold our home for 120k more than we paid for it 1 1/2 years ago. We have it homestead but didn’t live it in for 2 years. I’m assuming we will pay capital gains on that $120k? Is there anyway to not pay the capital gains like taking that profit and purchasing/building a new home?
Thanks for your help.
Great question there is a calculation for a time rented and you’ll want to reach out to your CPA
Hi, I have a question regarding my exclusion. My wife passed away 4 years ago and we purchased our house in 84. I heard that if me and my belated wife purchased our home together that I qualify for the $500,000 exclusion! Is that true?
Hi Michael, sorry for your loss. You will want to contact an accountant and or look this up on the IRS www.irs.gov/publications/p523
Hello, would I be able to use exclusion 121 twice in this scenario? I have a rental property that ive owned for 6 years and been renting out for 9 months so far and I have a new house that I bought in October 2019 if I sold both and made a profit of ie 200k on the first residence and lest say 30k on the second would I be able to not pay taxes on both?
Has to be primary residence you live in
So sorry for the late reply I’m just seeing this, you’ll want to reach out to your CPA
Great explanation! Not trying to be rude but primary is misspelled in the title. (primpary)
When we file tax, do we need to report it even though we qualify for primary residence exemption ? Does fed/state ask for evidence that it was primary residence ? what documents do we need in such cases ?
Great question. Your tax return would of shown if you were claiming a rental the year before and what you listed as your primary home
That was about as clear as mud.
My house is worth 800000 I am merry the house is played off,if I cash out 500000 from the house and invest in a mutual found than if I sell the house after a year and I pays the mortgage and invest the rest 300000 to buy a new house do I owe any think on taxes or the 300000 are exemted?how much will I pay?🙋
Hi Miguel, You will need to consult with a CPA
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What’s your number? I have questions