How will Capital Gains Taxes Affect the Sale of my Primary Home

Will you pay tax on the sale of your home?

Likely not, unless you have gains in excess of $250,000.

It used to be that once

you reached the age of 55, you had the one time option of excluding up to

$125,000 of gain on the sale of your home (your primary residence).

That rule

changed in 1997. Now, anyone, regardless of age, can exclude $250,000 of gain ($500,000 for a married couple filing jointly) on the sale of their home.

That means most people will pay no tax on the sale of their home, unless they haven't lived there very long.

To qualify for the tax exclusion on your home sale you must meet the following IRS requirements.Owned the home for at least 2 years (the ownership test), Lived in the home as your main home for at least 2 years (the use test), and During the 2-year period ending on the date of sale, you did not exclude gain from the sale of another home.

How will Capital Gains Taxes Affect the Sale of my Real Estate Investments

New3.8% Medicare Tax on "Unearned" Net Investment Income
Who is subject to this tax?

Taxpayers with incomes or an adjustable gross income (AGI)over $200,000 who file individually or $250,000 for married couples filing jointly could be subject to this tax.

The provision imposes a 3.8 percent tax (identical to the combined employer/employee tax rates on earned income) on income from interest, dividends, annuities, royalties and rents which are not derived in the ordinary course of trade or business, excluding active S corporation or partnership income.

Gross income does not include items, such as interest on tax-exempt bonds, veterans’ benefits, which are excluded from gross income under the income tax.

If capital gains on a primary home sale exceed $250,000 for individuals or $500,000 for a married couple,and the income threshold is met,the excess realized gains subject to the 3.8% tax.