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Tax Implications when Selling a Home

Uncle Sam looking at you for your tax payment

The huge gains in property value most homeowners have seen over the last couple of years is making homeowners considering cashing out that gain by selling their home. There are several factors to consider when making this decision. The most obvious consideration is where to move to. People think about where to live, how much a home will cost in that area and how their quality of life will change. Many people don’t think about the tax implications when selling a home. The most common tax faced by homeowners is capital gains tax.

Exemption to Capital Gains Tax

The long term capital gains tax is often overlooked when selling a home because there is a tax exemption in place. That exemption says if the home is your primary residence and you have owned it at least two years, your gain is tax exempt up to $250,000 for singles or $500,000 for married homeowners. Quite frankly, in years past, you had to be in your home for quite a while to see a gain like that. With home prices so high and recent appreciation skyrocketing, it may be easier to reach those tax thresholds. If you are coming close to your tax exempt limits on your primary residence, it could be in your best interest to make a sideways move. Sell your home and cash out your tax free capital gain. Then start fresh on a new home.

2022 Capital Gains limits

If your home sale does not qualify for the tax exemption or you are above the tax exempt limits, you are subject to the long term capital gains tax. So what does that mean? For income in 2022, if your taxable income is less than $41,675 for singles or $83,350 for joint filers there is still no tax due on the gain. Above those thresholds, the tax rate is 15%. If your taxable income is as high as $459,751 for singles or $517,201 for joint filers, the tax rate goes up to 20%. There is an additional tax of 3.8% if the adjusted gross income for singles is over $200,000 or $250,000 for joint filers.

Second homes, vacation homes, rental properties or any home that you don’t live in at least six months a year will not qualify for the primary residence tax exemption. There are other criteria to meet when determining which home is your primary residence. It is best to discuss it with your CPA if you own multiple properties.

Defer Capital Gains

If the home your selling is an investment property you may be able to defer you taxable gain by rolling those gains directly into another investment property. This process is a Starker or 1031 Exchange. If you follow the rules, you can avoid paying capital gains taxes for now. Those gains may be realized when the next property is sold unless another exchange is performed or the owner dies.

Short Term or Long Term

There are two types of capital gains taxes; short term and long term. Long term is ownership of at least one year. This information pertains to long term capital gains. Short term capital gains are generally taxed as regular income. However, there are exceptions that could apply in your situation.

Talk to your Accountant

We are real estate agents not tax advisors. This information is not tax advice. We have general knowledge that may or may not pertain to your particular situation. It is always a suggestion that you talk to your tax advisor and make an informed decision. We can help give you a basic understanding so you know what questions you should be asking.

Posted in: Seller Tips Tagged: 1031 Exchange, Capital Gains, Taxes

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About Us

Mountain Living Real Estate, a.k.a. The Mountain Living Team, is a family owned, second generation, real estate company that has been helping buyers and sellers in Summit County since the early 90’s.  Mountain Living Real Estate is committed to going above and beyond to ensure their clients have the most amazing real estate experience possible.  Jason & Meredith take a personal approach to educate their clients, empowering them to make high quality decisions no matter the situation.  They take exceptional care throughout the sales process and beyond; striving to make each client’s path in Summit County one filled with fun, excitement & great memories.

Work with Mountain Living Real Estate and you’ll understand why so many people say, “We Love Mountain Living!”

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The help we received was very good. You always followed thru. You have helped us with two transactions and we would definitely use Mountain Living Co. again.

John & Darrelyn from Boulder August 27, 2024

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Jason and Meredith Adams

Jason & Meredith Adams
Mountain Living Real Estate

101 Main St, #109, PO Box 4115 Frisco, CO 80443

(888) 666-0844
team@mountain-living.com

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Jason & Meredith Adams are both licensed to sell real estate in the state of Colorado

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