If you decide to sell your house to simplify life, lock in gains, downsize, or relocate for a job, this article will help you minimize your capital gains tax bill. You may even be able to pay no capital gains tax after selling your house for big bucks.
According to the IRS, most home sellers do not incur capital gains due to the $250,000 and $500,000 exclusion for single and married couples. This makes sense since the median home price is roughly $350,000 in 2021. If you make more than $250,000 – $500,000 on a median-priced home, it is extremely rare.
Conditions To Sell A Home Using The Tax-Free Exclusion
To be eligible for tax-free profits up to $250,000 / $500,000 for singles / married couples, there are three conditions that need to be met.
- Ownership. You must have owned the home for at least two years during the five years prior to the date of your sale. It doesn’t have to be continuous, nor does it have to be the two years immediately preceding the sale.
- Use. You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.
- Timing. You have not excluded the gain on the sale of another home within two years prior to this sale.
But let’s say you plan to sell a property where your gains are much greater than $250,000 / $500,000. Fear not! There’s still a good chance you still won’t owe much in capital gains tax if any. Let’s go through how with an example.