As the real estate market continues to soar, many homeowners are faced with the possibility of owing capital gains taxes upon selling their properties. Understanding how these taxes are calculated and ways to minimize them is crucial for maximizing your profits. I was recently featured in an article on CNBC by Kate Dore, CFP®, that delves into the intricacies of capital gains taxes and strategies to reduce your tax bill.
Key Points:
The Section 121 exclusion provides a tax break of up to $250,000 for single filers and $500,000 for married couples filing jointly.
However, with rising home values, more homeowners are exceeding these thresholds, leading to potential capital gains tax liabilities.
Tracking your home's cost basis is essential to minimizing tax liabilities.
Eligible costs that can be added to your home's basis include fees from the purchase and sale of the property, title fees, legal fees, and real estate commissions.
Paul Fenner advises homeowners to maintain accurate records of home improvements, which can further increase the home's basis and reduce capital gains taxes.
Eligible improvements include those that add value to the home, prolong its useful life, or adapt it to new uses, according to IRS guidelines.
Navigating capital gains taxes on home sales requires careful planning and attention to detail. By understanding the rules and leveraging strategies such as increasing your home's basis through eligible costs and improvements, you can minimize your tax bill and maximize your profits from the sale of your property.
Disclaimer: This blog post is a summary of the article "Your home sale could trigger capital gains taxes. Here’s how to calculate your bill" by Kate Dore, CFP® on CNBC. All credit for the original content goes to the author and CNBC.
