Tax Exemptions when Selling your Home - Great Money Savers

Tax Exemptions when Selling your Home – Minimizing Capital Gains

So, what are the tax exemptions when Selling your Home in San Carlos CA? Well, Prior to 1997 when you sold your primary San Carlos CA residence you could use all the funds to purchase a new property of equal or greater value and not pay any capital gain taxes. However, that has all changed thanks to the Taxpayer Relief Act of 1997.

Today, the tax exemptions when Selling your Home are as follows:

For any exemption, you must have lived in the home for at least 2 out of the last 5 years.
If you’re single, you get to deduct $250,000 from the appreciation in value
and $500,000 if you’re married

How to Calculate Capital Gains

Tax exemptions when selling your home in San Carlos play a big role in calculating capital gains. Capital Gains are based on how much your home has appreciated in value since you owned it, minus any IRS tax exemption allowed by the IRS, minus any capital improvements, and minus selling costs like commissions and escrow fees. For example, for a married couple the calculation may look as follows:

Purchased the home for $700,000 20 years ago
Selling the home for $2,000,000 today
Did a $300,000 remodel of the house 5 years ago
Paid out $100,000 in commission and $10,000 in escrow fees
Cap Gains Basis = Selling Price – Purchase Price – Capital Improvements – IRS Exemption – commissions – escrow fees
Cap Gains Basis = $2,000,000 – $700,000 – $300,000 – $500,000 – $100,000 – $10,000 = $390,000

So, $390,000 from the sale will be taxed as capital gains. California has a tax of 13%, the Feds roughly 20% for cap gains, plus 3.8% for Obama Care. You will likely be taxed around $142,500

Keep in mind that capital improvements are long term improvements to a home in San Carlos, maintenance does not count. A new roof is not a capital improvement because it’s considered maintenance. However, remodeling a kitchen or building an addition will count as a capital improvement. Consult an accountant to verify your cap gains base before putting your home on the market.