Capital gains on homes

Capital gains on homes

Host : Wasn't there a capital gains break for homeowners?

David : Yes. This is one of the few new tax breaks that simplifies the tax code. In the past, when you sold a home, you could avoid capital gains taxes by either buying a home of equal or higher value, or if you were over age 55 you could exclude a gain of up to $125,000.

Now if you sell a house after living in it for two years, you can completely exclude any gain of up to $250,000 if you're single, and $500,000 if you're married. If you've been in the house less than 2 years, you get a pro-rated exclusion.

Host : Does this only apply to those over age 55 or those who buy a home of equal or higher value?

David : No, so this is a big break and adds some common sense to the tax code.

Before, for example, if you moved from California to a cheaper area like Montana, you'd have to buy a huge mansion in Montana to avoid paying taxes. Now you can buy what you need, and still avoid taxes. It also relieves homeowners of record keeping hassles.

Finally, if you like fixing up run-down homes, you can buy and fix up a house, resell it, and potentially avoid paying any income taxes if you lived in the home.