This year’s tax filing season is behind us, but if you sell your home this year (or any other, for that matter), you’ll find your home will shelter your taxes, as well as your family. Specifically, the Taxpayer Relief Act of 1997 provides a substantial exemption on your capital gains when you sell.
In general terms, when you sell your home, the IRS allows you to keep capital gains — tax free — of up to $500,000 for married couples filing jointly or $250,000 for single taxpayers. That’s right, no taxes on your gains, if you qualify.
It’s fairly simple to qualify, with the most important requirement being that you’ve lived in the home for two of the last five years. And this is an exclusion you can claim again and again, theoretically every two years!
There are even provisions if you are forced to sell before you satisfy the two-year requirement, for reasons such as job change, illness, divorce, disaster or others. The exclusion on capital gains taxes is simply pro-rated in these cases.
For example, if you live only one year in your home before being forced to sell early, you can exclude up to one-half of the normal limits from capital gains taxes (up to $250,000 instead of $500,000 for married taxpayers filing jointly). As always, consult your tax professional to discover how to maximize the benefits of home ownership.