If I sell my house will I owe taxes?

The following merely a basic primer. We are not tax advisors, always check with your tax advisor and tax attorney for changes in the tax laws and how such laws may affect your personal tax situation.  

Your home is likely your life’s biggest and proudest purchase: all the painstaking measures you took—countless property searches, contract negotiations, inspections, and closing—to arrive at the dream of homeownership. Now, it’s time to sell. What next? Did you know that your home is considered a capital asset, subject to capital gains tax? If your home has appreciated in value, you could be required to pay taxes on the profit. 

However, thanks to the Taxpayer Relief Act of 1997  most homeowners are exempt from capital gains.  Before 1997, homeowners were subject to capital gains taxation when they sold their houses unless they purchased replacement homes of equal or greater value. Since 1997, homeowners can exclude capital gains of $500,000 (or $250,000 for single filers) when they sell their houses. 

• You can sell your primary residence and be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly.
• This exemption is only allowable once every two years.
• You can add your cost basis and costs of any improvements that you made to the home to the $250,000 if single or $500,000 if married filing jointly
•  There are, however, some restrictions; 
• If the property is not your primary residence or your profit exceeds the stated values you may want to review our 1031 exchange information. 
• Furthermore, if you inherited the whole property of your spouse's half please look at our "Inheritance"  tab in the menu.  If any of them may apply to you, discuss them with your tax professional to determine how they would apply to your personal situation. 

Capital gains are profits you make from selling an asset. Typical assets include businesses, land, cars, boats, and investment securities such as stocks and bonds. Selling one of these assets can trigger a taxable event. This often requires that the capital gain or loss on that asset be reported to the IRS on your income taxes.

The tax rate on most net capital gain is no higher than 15%for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than or equal to $40,400 for single or $80,800 for married filing jointly or qualifying widow(er).

A capital gain rate of 15% applies if your taxable income is more than $40,400 but less than or equal to $445,850 for single; more than $80,800 but less than or equal to $501,600 for married filing jointly or qualifying widow(er); more than $54,100 but less than or equal to $473,750 for head of household or more than $40,400 but less than or equal to $250,800 for married filing separately.

However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.

There are a few other exceptions where capital gains may be taxed at rates greater than 20%:

1. The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.
2. Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.
3. The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.

Generally, capital gains and losses are handled according to how long you've held a particular asset – known as the holding period. Profits you make from selling assets you’ve held for a year or less are called short-term capital gains. 

Note: Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates.