GET TAX-FREE GAINS WHEN SELLING YOUR PRIMARY HOME!
1. What is Your "Tax Basis"?
Your tax basis is the cost of buying, building, or improving a property. For example:
2. What is Your "Capital Gain"?
Your capital gain on the sale of the property is your sales price MINUS your costs of sale MINUS your basis. For example:
3. What is the "Capital Gains" Tax?
In the US, we're required to pay capital gains taxes on any profit ("capital gain") we receive when we sell a property. Under current law, the capital gains tax rate can be up to 20%, plus an additional 3.8% net investment income tax. Using the example above, you could be required to pay up to up to $76,160 in capital gains taxes (23.8% tax on the $320,000 of capital gain), depending on your specific income level.
4. What is the "Primary Residence Exclusion"?
If the property is your primary residence, you can get 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 $320,000 would be excluded from tax if this was your primary home and if you were married, filing a joint tax return. This means that you could save up to $76,160 by using this exclusion (no capital gains tax and no 3.8% investment income tax)! Here are several rules to follow to qualify for the exclusion:
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