Here’s a little info on how a seller may save on capital gains taxes after the sale of their property, this topic comes up often with my clients when they’re selling a home in Danville, CA
When you sell your home, there’s a tax benefit called the home sale tax exclusion. If you’re single, you can exclude up to $250,000 of profit from taxes. For married couples filing jointly, it’s even better – you can exclude up to $500,000.
This means if your profit is within these amounts, you won’t pay taxes on it. But if your profit goes beyond these limits, you’ll need to pay state and federal capital gains taxes. To qualify for this exclusion, you should have both owned and lived in the property for at least 2 out of the last 5 years.
You can subtract certain selling expenses from the final sale price. These expenses might include things like: real estate agent fees, closing fees, and transfer tax fees.
1031 exchange
Some clients ask me if there’s a specific time frame to reinvest their proceeds into another property to avoid capital gains taxes. The answer is no, there is not. People sometimes mix this up with a “1031 exchange,” which is about avoiding taxes when selling an investment property, not a primary residence. With the “swap till you drop” strategy, people keep swapping homes, avoiding taxes, and enjoying benefits until they drop (pass away). Then their heirs can sell the property without paying much, if any, capital gains tax due to a step-up in tax basis.
Step-up in tax basis
Speaking of step-up in tax basis, this is about adjusting the property’s value to its value when the owner dies. It can lead to tax savings for their spouse, children or other heirs.
For instance, if someone bought their home for $300,000 years ago and it’s worth $1,100,000 when they pass away, the heir’s basis now is “stepped up” to $1,100,000. This means if the heir sells the house right away for $1,100,000, there’s no capital gains tax. If they sell it later for $1,500,000, they only pay tax on the $400,000 increase since the owner’s death.
This step-up in basis wipes out gains that happened while the original owner owned the property.
Todd Goforth, Realtor – Danville, CA
Todd Goforth, Realtor
601 Sycamore Valley Rd W
Danville, CA 94526
925-788-5741
www.SellingDanville.com