Selling your home tax free when you are single.

Member since 2020 · 6 posts · 1 vote

I am single and own a house free and clear and it's worth about $500k. Under current laws I can only exempt $250k from capital gains. I could get married and file jointly and the exemption would be $500k which is enough to cover me.

What other options are there? :) If I took out a home equity loan and pulled out $250k, sold the house and paid off the home equity loan, which this accomplish the same thing?

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Basit SiddiqiBusiness Member

Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes

@Gray Bryan

Taking out a HELOC/loan won't decrease your taxable gain.

Gain is calculated as sales price less adjusted basis(purchase price + improvements - depreciation taken).

It looks like there is currently a taxable gain of about $125,000 unless there is significant improvement.

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Amy Fulbright
DFW, TX · Member since 2018 · 41 posts · 20 votes
6y
Are you trying to purchase a new house afterwards or just pocket the money?
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Gray Bryan
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Member since 2020 · 6 posts · 1 vote
6y
Buy another house that would be less expensive.
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Thomas RutkowskiPro Member
Financial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 798 votes
6y
How much is your capital gain? Unless you got the house for free, you have some cost basis in it.
The HELOC will give you access to the equity without selling the property. But if you sell it, the loan has nothing at all to do with the capital gain calculation. Debt over basis is a separate issue, though.
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Gray Bryan
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Member since 2020 · 6 posts · 1 vote
6y
The cost basis would be $122k plus whatever it cost to get the house ready to sell plus commission fees I guess. The market value for it is about $500k.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
6y
Getting married won't auto bump you to $500k
You need to both OWN and occup it for 2/5 years. So the spouse wouldn't have owned it for 2 years.
Did you do any improvements on the house over the years?
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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
6y
@Gray Bryan

Taking out a HELOC/loan won't decrease your taxable gain.

Gain is calculated as sales price less adjusted basis(purchase price + improvements - depreciation taken).

It looks like there is currently a taxable gain of about $125,000 unless there is significant improvement.

[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
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Account Closed
Specialist · Paradise Valley, AZ · Member since 2018 · 3k+ posts · 2k+ votes
6y
Originally posted by @Gray Bryan:
I am single and own a house free and clear and it's worth about $500k. Under current laws I can only exempt $250k from capital gains. I could get married and file jointly and the exemption would be $500k which is enough to cover me.

What other options are there? :) If I took out a home equity loan and pulled out $250k, sold the house and paid off the home equity loan, which this accomplish the same thing?
What you CAN do, is borrow as much against the house as you qualify for. That is non taxed money. Then turn your house into a rental until it qualifies for 1031 status. Then use a 1031 exchange to add to your portfolio if you wish.
And use the money you borrowed to buy the house you want to live in.
(I haven't done it that way myself but someone on the thread will correct me if I missed something. ;-)
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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
6y
Spoken like a seasoned veteran @Account Closed, if you do turn that house into a rental but sell it while you have still lived in it for two out of the five years immediately prior to the sale you can still take your full $250K primary residence exemption tax free. and you can do a 1031 and defer tax on the rest. It's a lovely little window in time when you would qualify for both.
But you may want to dig up receipts and run calcs first. If the homes market value is $500K then that doesn't mean a net sale of $500K. It will be less than that. Closing costs and negotiations have to be factored in. That could easily bring your net sale down to $450K.
And any improvements add to your basis on the opposite end. If you had a basis of $200K and a net sale of $450K then you wouldn't have any excess gain. All of it would fall into your $250K exemption.
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