Real Estate Capital Gains for Primary Residence
Our firm is frequently asked whether the seller of real estate will be required to pay a capital gains tax. Most often, the question we receive is: “Do I have to pay a real estate capital gains tax when I sell my primary residence?”
The IRS has certain rules that apply to the sale of your primary residence, including a possible tax exemption for the real estate capital gains on your main home if you qualify.
What are capital gains? “Capital gains” is a measurement of the increase in the value of an asset from the time it is bought to the time it is sold.
What is the possible exemption? At the time of this article, if you qualify, you can exclude up to $250,000 of capital gain from the sale of your main home from your income, or up to $500,000 if you file a joint return with your spouse (IRS Topic 701). This amount may change over time, so be sure to speak with a tax professional for current figures.
What if I sold the property by installment sale? You may still be able to utilize the capital gains tax exemption if you are seller-financing a primary residence sale to a new owner through accepting monthly installment payments. Note: You may also be subject to income tax on any interest payments received under a seller-financing transaction.
How does the government know the sale price of my home? Each county clerk accepting a deed throughout the State of Oklahoma will collect some form of affidavit about the sale price of a property, whether the title company or a party to the transaction is the one to record the deed. With the IRS, you may be required to file an IRS Form 1099-S regarding proceeds from real estate transactions when doing your taxes for the year in which you sold your property; this form specifically requires you to disclose the gross proceeds of the sale, which is the full sale price for the transaction.
Do investment properties qualify for exemption from capital gains tax? Generally speaking, no, investment properties are not going to be exempt and therefore must pay capital gains tax. However, there may be an opportunity to defer capital gains tax from the sale of investment properties through an IRS section 1031 tax-deferred exchange. A 1031 exchange must be carefully planned and executed in order to effectively defer tax liability; our firm is experienced and knowledgeable about the process and can help you create a strong 1031 strategy to effectively preserve your capital.
Contact an accountant for specific capital gains calculations and advice.
Contact Avenue Legal Group to discuss the sale of your primary residence, possible capital gains tax exemptions, or possible capital gains deferral strategies.
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