Capital Gains on Home Sale: Key Considerations
Learn key considerations when selling a home and dealing with capital gains - important information for all homeowners to know. Understand the impacts of capital gains on taxes and other financial obligations.
Capital Gains on Home Sale: Key Considerations
When you own and sell a home, there are many considerations -- one of these considerations is the potential tax implications. In some cases, this can include capital gains taxes, and it's important to be familiar with this topic before signing any sales agreements. Understanding capital gains and how they work will make sure you understand the potential financial impact of selling your home.
What are Capital Gains?
Capital gains are the profits from selling an asset – in this case, a home. Capital gains are not income, but rather an increase in value. This increase in value can have tax implications. In most cases, capital gains taxes are owed when the gain is realized. This means that capital gains taxes are owed when the sale occurs, but not when the asset was originally purchased.
Who Pays Capital Gains Taxes?
In general, anyone selling a home may owe capital gains taxes. There are some exceptions, such as primary residences. If you've lived in your home for at least two years, you may qualify for the primary residence exemption. Anyone who doesn't qualify will be subject to capital gains taxes. The amount of tax owed depends on a number of factors including how long you've owned the home, what your taxable income is, and any adjustments made to the purchase price.
Calculating Capital Gains on Your Home Sale
In general, taxable capital gains on a home sale are calculated by subtracting the purchase price from the sale price, and then subtracting any costs associated with the sale such as closing costs, real estate commissions, legal fees, and any capital improvements made to the home. The resulting number is the taxable gain. It's important to note that if you've owned the home for at least two years, you may qualify for the primary residence exemption which can exempt you from capital gains taxes.
Consult with a Professional
Selling a home can be a complicated process, and it's important to understand the potential financial implications. Talking to a qualified tax professional or financial advisor can help you understand the potential capital gains taxes associated with selling your home. With the right advice, you can make sure you have all the information you need to make an informed decision about the sale of your home.