Capital gains are profits that are made from the sale of an asset, such as real estate. When you sell a piece of real estate for more than you paid for it, you have made a capital gain. You will need to pay taxes on this capital gain, unless you are eligible for an exemption.
When do homeowners have to pay capital gains taxes?
You will need to pay capital gains taxes on the sale of your home if you meet the following criteria:
- You have owned the home for less than two years as your primary residence.
- You have sold the home for more than you paid for it.
- You are not eligible for an exemption.
How much will homeowners have to pay in capital gains taxes?
The amount of capital gains taxes you will owe will depend on your income and tax bracket. For example, if you are in the 15% tax bracket, you will owe 15% in capital gains taxes on your profit. If you are in the 37% tax bracket, you will owe 37% in capital gains taxes on your profit.
Exemptions from capital gains taxes
There are a few exemptions from capital gains taxes that homeowners may qualify for. One exemption is the primary residence exclusion. If you have owned and used the home as your primary residence for at least two years out of the five years before the sale, you may be able to exclude up to $250,000 in capital gains from taxes ($500,000 if you are married filing jointly).
Another exemption is the rollover exclusion. If you sell your home and purchase a new home within two years, you may be able to roll over your capital gains into the new home, deferring the taxes until you sell the new home.
How to calculate your capital gains
To calculate your capital gains on the sale of your home, you will need to subtract your basis from your sales price. Your basis is the amount you paid for the home, plus any improvements you have made to the home.
How to pay your capital gains taxes
You will need to pay your capital gains taxes on your federal income tax return. You can use Schedule D to calculate your capital gains and losses.
Contact Lee Fisher and L.A. Fisher Real Estate Investment Company
If you have any questions about capital gains on real estate, you should contact a qualified Certified Public Accountant (CPA). If you do not know one, then contact Lee Fisher and L.A. Fisher Real Estate Investment Company for referrals to qualified CPAs. A CPA can help you understand the tax implications of selling your home and develop a plan to minimize your tax liability.
Capital gains on real estate can be a complex topic, but it is important for homeowners to understand the basics. By understanding the tax implications of selling your home, you can develop a plan to minimize your tax liability and maximize your profits.
For real estate transactions in Scottsdale, AZ, Paradise Valley, AZ, or any part of the Phoenix Metropolitan area, reach out to Lee Fisher, the Broker and Owner of L.A. Fisher Real Estate Investment Company.