Timing is everything: Hold onto your home for longer than one yearIf you are planning to sell your property, timing is everything. Holding onto your home for longer than one year is essential to beat capital gains tax. According to the IRS, if you sell your home within one year of purchase, you are not eligible for the Capital Gains Exclusion. However, if you hold onto your home for longer than one year, you may qualify for a significant tax break.
Staying put: Capital Gains Exclusion eligibility after two yearsAnother way to beat capital gains tax is by staying put in your property for a minimum of two years. The IRS allows you to exclude up to $250,000 of the gain from your primary residence ($500,000 for married couples filing jointly) if you have lived in and owned the property for at least two of the past five years. This means that if you sold your primary residence after living in and owning it for two years or more, you may be able to exclude up to $250,000 of the gain from the sale of your property. If you are married and file jointly, you may be eligible to exclude up to $500,000 in gains. Key point: Staying in your home for at least two years can help you qualify for the Capital Gains Exclusion and reduce your tax liability.
Upgrade your home, upgrade your savingsAnother way to beat capital gains tax is by upgrading your home. Keeping track of your home’s upgrades and improvements can help you lower your tax bill when you sell. The cost of upgrades and improvements can be added to your home’s basis, which reduces the amount of gain subject to tax.
For example, if you bought your home for $200,000 and made $50,000 worth of upgrades, your basis for tax purposes would be $250,000. This means that if you sell your home for $400,000, you would only pay capital gains tax on the $150,000 gain instead of the $200,000 gain. Key point: Keeping track of your home’s upgrades can help you minimize your capital gains tax.
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- Keep receipts and invoices of all upgrades and improvements
- Maintain detailed records of any repairs or renovations
- Consider hiring a professional appraiser to determine your home’s value