You can sell your primary residence and be exempt from capital gains on the first $250,000 if you are single and $500,000 if married filing jointly. All you have to do is live in the house at least 2 of the last 5 years. Exemption is only available once every 2 years.
Plus, you can add your cost basis and costs of any improvements that you made to the home to the $250,000/$500.000 amounts.
Example: A married couple, purchased a home for $500,000 in 2015. The neighborhood experienced tremendous growth, and home values increased significantly. Seeing an opportunity to reap the rewards of this surge in home prices, they sold their home in 2022 for $1.2 million. The capital gains from the sale were $700,000. As a married couple filing jointly, they were able to exclude $500,000 of the capital gains, leaving $200,000 subject to capital gains tax. If they had sold for $1.0 million, there would be no capital gains tax. $1.0 million sales price - $500,000 original purchase price = $500,000, which would be exempt from taxes.
Always consult a tax professional, as a double check and because of the mention of cost basis and improvements mentioned earlier.
This is an excellent incentive to invest in real estate, as up to a $500,000 gain is not taxable.
And as Mark Twain once said:
“A person doesn't know how much he has to be thankful for until he has to pay taxes on it."
Except in selling your home!
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