Anonymous
03/28/2025 11:10
Subject: Re:How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Anonymous wrote:Anonymous wrote:Anonymous wrote:Is this a second home or investment property? I’m not sure the capital gains tax applies.
You pay tax on any gains of more than $250K if filing singly or $500K if filing jointly.
Would the tax be long term capital gains? What would be the the tax rate - 10%?
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.
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.
Thank you! PP here and that’s what I thought but it was harder than I thought it would be to confirm.
Anonymous
03/28/2025 11:08
Subject: How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:I’m single and bought a house for 800k a few years ago in a neighborhood that seems to be increasing in popularity. If it goes up to 1.2 million, then I already exceed the 250k exclusion. If and when I sell, my LT partner and I plan to move to a lower COL area where houses costing 400k are bigger and fancier than what we want, and we plan to buy together with another 200k or proceeds from a previous sale on their home.
I’m not sure there will be enough house there for me to roll it all into.
What should my strategy be? We are considering marriage but planned to wait until my kids (prev relationship) are through college.
I have put some money into updates (hardwood floors, newer energy efficient fancy water heater, etc) but not enough to really affect the basis all that much.
The capital gains on home sales really bothers me because it feels like a tax on savings as home prices rise along with COL.
If I had $250,000 bank I’d get taxed on the interest.
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
03/28/2025 11:06
Subject: Re:How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Anonymous wrote:Anonymous wrote:Is this a second home or investment property? I’m not sure the capital gains tax applies.
You pay tax on any gains of more than $250K if filing singly or $500K if filing jointly.
Would the tax be long term capital gains? What would be the the tax rate - 10%?
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.
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
03/28/2025 10:49
Subject: Re:How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Is this a second home or investment property? I’m not sure the capital gains tax applies.
You pay tax on any gains of more than $250K if filing singly or $500K if filing jointly.
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
03/27/2025 22:36
Subject: How to avoid capital gains tax on house sale
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
03/27/2025 21:41
Subject: How to avoid capital gains tax on house sale
Anonymous wrote:I’m single and bought a house for 800k a few years ago in a neighborhood that seems to be increasing in popularity. If it goes up to 1.2 million, then I already exceed the 250k exclusion. If and when I sell, my LT partner and I plan to move to a lower COL area where houses costing 400k are bigger and fancier than what we want, and we plan to buy together with another 200k or proceeds from a previous sale on their home.
I’m not sure there will be enough house there for me to roll it all into.
What should my strategy be? We are considering marriage but planned to wait until my kids (prev relationship) are through college.
I have put some money into updates (hardwood floors, newer energy efficient fancy water heater, etc) but not enough to really affect the basis all that much.
The capital gains on home sales really bothers me because it feels like a tax on savings as home prices rise along with COL.
If I had $250,000 bank I’d get taxed on the interest.
Anonymous
03/27/2025 21:28
Subject: How to avoid capital gains tax on house sale
Anonymous wrote:Do don't roll it into another house. Say you have $400k of gains (you reduce the gain with closing costs, improvements, realtor fees, etc.) then $250k of it will be tax free. Can you really not pay 20% of $150k gain for $30k? Seems reasonable to me on a profit of $400k.
+1
“Oh no, I have to pay an extra $30K in taxes BECAUSE OF THE $400K I JUST MADE.”
Anonymous
03/27/2025 18:55
Subject: Re:How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Anonymous wrote:Is this a second home or investment property? I’m not sure the capital gains tax applies.
You pay tax on any gains of more than $250K if filing singly or $500K if filing jointly.
Would the tax be long term capital gains? What would be the the tax rate - 10%?
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
03/27/2025 16:27
Subject: Re:How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Anonymous wrote:Is this a second home or investment property? I’m not sure the capital gains tax applies.
You pay tax on any gains of more than $250K if filing singly or $500K if filing jointly.
Why isn't this cap adjusted for inflation or the national home appreciation rate?
Because Congress didn’t adjust it for inflation when it was created in 1997.
Anonymous
03/27/2025 16:23
Subject: Re:How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Anonymous wrote:Is this a second home or investment property? I’m not sure the capital gains tax applies.
You pay tax on any gains of more than $250K if filing singly or $500K if filing jointly.
Why isn't this cap adjusted for inflation or the national home appreciation rate?
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
03/27/2025 16:20
Subject: How to avoid capital gains tax on house sale
Anonymous wrote:Do don't roll it into another house. Say you have $400k of gains (you reduce the gain with closing costs, improvements, realtor fees, etc.) then $250k of it will be tax free. Can you really not pay 20% of $150k gain for $30k? Seems reasonable to me on a profit of $400k.
There is no rollover anymore, and hasn’t been for decades.
Anonymous
03/27/2025 14:23
Subject: Re:How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Is this a second home or investment property? I’m not sure the capital gains tax applies.
You pay tax on any gains of more than $250K if filing singly or $500K if filing jointly.
Why isn't this cap adjusted for inflation or the national home appreciation rate?
Anonymous
03/27/2025 13:04
Subject: Re:How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Is this a second home or investment property? I’m not sure the capital gains tax applies.
You pay tax on any gains of more than $250K if filing singly or $500K if filing jointly.
Would the tax be long term capital gains? What would be the the tax rate - 10%?
Anonymous
03/27/2025 12:17
Subject: How to avoid capital gains tax on house sale
Anonymous wrote:It's all self reported anyway and no one at the IRS was looking even pre-DOGE. I doubt anyone is paying cap gains on a home sale.
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
03/27/2025 11:30
Subject: How to avoid capital gains tax on house sale
Anonymous wrote:Anonymous wrote:Question. I had to refinance and bought my ex out of the house. If I sell, is the capital gains related to the assessed value when I started owning the house or when I first bought the house with him?
If only there were professionals who could answer these questions...
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.