Tuesday, July 11, 2023 / by April Castillo
Selling a home is a significant financial transaction that can result in capital gains, which may be subject to taxation. If you are a homeowner, it is important to have a clear understanding of the capital gains tax implications when selling your property.
What is Capital Gains Tax?
Capital gains tax is a tax imposed on the profit made from the sale of an asset, such as real estate or stocks. In the context of selling a home, it refers to the tax on the gain realized from the sale of a property. In the United States, the Internal Revenue Service (IRS) provides specific rules and guidelines regarding capital gains tax on home sales. The tax rate for long-term capital gains (assets held for more than one year) generally ranges from 0% to 20%, depending on your taxable income.
Homeowners may be eligible for certain exclusions or deductions that can reduce or eliminate their tax liability. The most common exclusion is the Primary Residence Exclusion, if you have owned and used your home as your primary residence for at least two out of the five years before selling it, you may exclude up to $250,000 (or $500,000 for married couples filing jointly) of the profit from being taxed.
However, if you fail to meet the ownership and use requirements, or if you have claimed the exclusion on another home sale within the past two years, you may not qualify for the full exclusion. Additionally, any depreciation claimed for business or rental use of the property may reduce the exclusion amount.
Given the complexities and potential tax implications, it is advisable to consult a qualified tax professional or accountant when selling your home in Yuma. They can provide personalized advice based on your specific situation and ensure compliance with the tax laws. Understanding the rules and exclusions surrounding capital gains tax is crucial to properly calculate your tax liability. By familiarizing yourself with the regulations and seeking professional guidance, you can navigate the process more confidently and potentially reduce your tax burden when selling your home in Yuma.