How to avoid capital gains tax on house sale
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Anonymous
Has nothing to do with refinancing. Usually you value half the house at the originally purchase price and half at the value at which you received the other portion of the ownership, assuming it was jointly owned. You should have some way to determine the value at the divorce - presumably you had to buy him out or exchange the house for another asset. |
Anonymous
Yes we are. I bought a 4 yo home for $1.2M, 8 years later sold it for $2.5M. No way in HeLL you could do $800K in improvements (and the listing photos would show that). No need to, as the house was only 12 yo when we sold it. Ok, you could spend that much, but nobody is gutting a 4-12 yo home. At most you are repainting/new carpets or ripping them out for HWfloors, new water heater and furnace, etc. At most you might get to $100K, and even then, is replacing a hot water heater an "improvement"? I'd consider it just maintaining the home, same with furnace. |
Anonymous
Would the tax be long term capital gains? What would be the the tax rate - 10%? |
Anonymous
Why isn't this cap adjusted for inflation or the national home appreciation rate? |
Anonymous
There is no rollover anymore, and hasn’t been for decades. |
Anonymous
Yes, they should adjust the exclusion amount, I think it’s been the same since they started doing it this way, and someone above said that was during the Clinton administration. There’s been a lot of inflation since then. |
Anonymous
Because Congress didn’t adjust it for inflation when it was created in 1997. |
Anonymous
I just quickly scanned a couple of websites on this and couldn’t find whether the amount over the $250K or $500K is taxed as a long term capital gain or as ordinary income - perhaps someone who’s been fortunate enough to end up in this situation can chime in. |
Anonymous
+1 “Oh no, I have to pay an extra $30K in taxes BECAUSE OF THE $400K I JUST MADE.” |
Anonymous
If I had $250,000 bank I’d get taxed on the interest. |
Anonymous
| Once you include the costs of buying and selling the house you probably won’t have much capital gains. Maybe $50k, so you’d owe $5k? Just pay it and don’t tie together your asset until you’re ready. |
Anonymous
What kind of upgrades have you done? That increases your initial cost basis, so if you $800k becomes $850k and you sell it for $1.1m, you're fine. |
Anonymous
long-term capital gains is determined by the length of time you have held the asset. since you have to have occupied a home for at least 2 years out of 5 years to meet the primary residence test, gains that are over the primary residence exclusion would be long-term capital gains, which is 15% for most people but could be 20% if net taxable income that year is over $583k if filing jointly. https://www.irs.gov/taxtopics/tc409#:~:text=Net%20capital%20gains%20are%20taxed,than%2015%25%20for%20most%20individuals. |
Anonymous
This is, frankly, also crazy, and I’m surprised more people don’t advocate for a change in this regard. You’re essentially just being taxed on inflation. Right now, we supposedly have “high interest rates.” But the interest on cash is around 4.2%. Given that most middle-class people pay a marginal tax rate of at least 30% (say, 22% federal and 8% MD), the after-tax rate on cash is 2.9%. For comparison, the most recent CPI figure showed a 2.8% increase YoY. When interest rates drop even slightly, the after-tax return on cash will be below the inflation level. We should not be taxed “gains” that are simply inflation. |
Anonymous
Thank you! PP here and that’s what I thought but it was harder than I thought it would be to confirm. |