Juli Doty - Real Estate, Real Advice

Capital Gains

Capital Gains Deduction and Your Home

What's the best tax break available to the average American? If they're homeowners, it's selling their house.

Homeowners already know about many tax breaks, most notably mortgage interest and property tax deductions. There is also good tax news for home sellers: most of them won't owe the internal revenue service a single dime.

When you sell your primary residence, you can make up to $250,000 in profit if you're a single owner, twice that if you're married, and not owe any capital gains taxes.

Most people are not going to have a tax obligation unless their gain is huge.

Some sellers are surprised by this break, especially if they've been in their homes for a while. That's because before May 7, 1997, the only way you could avoid paying taxes on your home-sale profit was to use the money to buy another, more-expensive house within two years. Sellers age 55 or older had one other option. They could take a once-in-a-lifetime tax exemption of up to $125,000 in profits. And in all instances, there was tax paperwork to fill out to show that you followed the rules.

But when the taxpayer relief act of 1997 became law, the home-sale tax burden eased for millions of residential taxpayers. The rollover or once-in-a-lifetime options were replaced with the current exclusion amounts that apply to every sale.

So, to simplify this article:

• You may sell your primary residence that you have lived in for at least two out of the last five years for a gain of up to $250,000 if you are single, $500,000 if you are married and owe no tax!