How The Capital Gains Exclusion Works.
Posted by Dana Schatzl at 4/14/2007 1:04 PM 
Categories: Quincy Homes and Real Estate,Quincy MA,Sellers,Quincy Ma Real Estate,General Real Estate,Buyers
Categories: Quincy Homes and Real Estate,Quincy MA,Sellers,Quincy Ma Real Estate,General Real Estate,Buyers
I have been asked to write about the Federal Capital Gains Tax Exclusion and how it works with Real Estate. Many people are confused as to the current tax laws. This is informational only and not meant to take the place of a Professional Accountant.
The old law was a one time exclusion, up to $125,000 only. You had to be over 55 years of age to use this exclusion, and it could only be used once in a lifetime. Anyone under the age of 55, had to reinvest the proceeds within 2 years to avoid paying a capital gains tax.
This all changed in 1997 when the new tax law was passed.
Anyone who used the old one time exclusion is still allowed to use the new exclusion as long as the 2 year occupancy requirement is met. In fact, this can be used every two years.
The new law gives an exclusion of $250,000 to a single person or $500,000 for a married couple who files a joint return. You must have lived in the home for 2 of the previous 5 years to be eligible for the entire exclusion. There are a few exceptions to this rule. A job transfer for one, but I would check with your accountant to be sure that all requirements are met. If you have not lived in the home for 2 years, you may still be eligible for a partial exclusion.
In the case of a married couple where one spouse passes away, the other spouse can still claim the $500,000 exclusion only if the home is sold in the same calendar year. As soon as the calendar year changes, the surviving spouse would only be eligible for an exclusion of $250,000.
Investment properties are not eligible for an exclusion. In the case of a multi unit building where the owner lives in one unit, they can still claim the exclusion on that portion of the home. The remainder of the home would be considered investment property, and not eligible.
I hope this helped explain the capital gains tax. As I mentioned earlier, this is not a substitute for a qualified accountant. I would alway reccomend that you consult with a CPA or Tax Attorney for the latest changes in the law. You may still be subject to State Capital Gains Taxes.
The old law was a one time exclusion, up to $125,000 only. You had to be over 55 years of age to use this exclusion, and it could only be used once in a lifetime. Anyone under the age of 55, had to reinvest the proceeds within 2 years to avoid paying a capital gains tax.
This all changed in 1997 when the new tax law was passed.
Anyone who used the old one time exclusion is still allowed to use the new exclusion as long as the 2 year occupancy requirement is met. In fact, this can be used every two years.
The new law gives an exclusion of $250,000 to a single person or $500,000 for a married couple who files a joint return. You must have lived in the home for 2 of the previous 5 years to be eligible for the entire exclusion. There are a few exceptions to this rule. A job transfer for one, but I would check with your accountant to be sure that all requirements are met. If you have not lived in the home for 2 years, you may still be eligible for a partial exclusion.
In the case of a married couple where one spouse passes away, the other spouse can still claim the $500,000 exclusion only if the home is sold in the same calendar year. As soon as the calendar year changes, the surviving spouse would only be eligible for an exclusion of $250,000.
Investment properties are not eligible for an exclusion. In the case of a multi unit building where the owner lives in one unit, they can still claim the exclusion on that portion of the home. The remainder of the home would be considered investment property, and not eligible.
I hope this helped explain the capital gains tax. As I mentioned earlier, this is not a substitute for a qualified accountant. I would alway reccomend that you consult with a CPA or Tax Attorney for the latest changes in the law. You may still be subject to State Capital Gains Taxes.
Comments