capital gain - advice for someone new

Mc Lean, VA · Member since 2017 · 9 posts · 0 votes

Dear BPs.

My husband is about to sell the home we live in with a potential capital gain. I understand that for a married couple $500K of capital gain is tax free. Question:

1. Is this a once in a lifetime "thing" or could it be repeated?

2. If hypothetically speaking there is more than 500K capital gain, then what is the tax rate on that amount?

3. Lastly, I apologize for a really dumb question but is a capital gain difference between what you bought the house for and what you sold it for?

Thank you, all, so much for your great help and advice

0 Reply

23 views

5 Replies

Jump to latestLatest

Sort by

Andrew Kerr
Rental Property Investor · Everywhere, USA · Member since 2012 · 689 posts · 525 votes
8y
@Tatyana Williams welcome to the forums! Hopefully we can get a CPA to chime in. But the crux is the tax laws are changing and I am not 100% sure what they will be.
The one question I can answer for you is number 3, yes the simple answer is you pay capital gains on the difference between the sales price and purchase price. You don't pay tax on the total amount you walk away with as you could have put down a large down payment and you most likely had been paying down the principal.
0 Reply
Carl FischerPro Member
Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
8y
@Tatyana Williams
You can repeat it every 2 years if you want.
If more than $500K it will be max of 20-25% at today's rates but it is also dependent on your total income. Get with your CPA for your specific particulars.
You are correct it is the difference between purchase and sale price as well as capital improvements enhancements to the house.
[email protected]215-283-2868
0 Reply
Tatyana Williams
OP
Mc Lean, VA · Member since 2017 · 9 posts · 0 votes
8y
thank you so much to both of you - BP is amazing!
0 Reply
Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
8y
@Tatyana Williams
1. Is this a once in a lifetime "thing" or could it be repeated?

It can be repeated every 2 years as long as you own and live in the property for 2 out of the last 5 years.
2. If hypothetically speaking there is more than 500K capital gain, then what is the tax rate on that amount?
You have to factor in Federal capital gains tax rate which can be 0%, 15%, 20%, 23.8%*(net investment income tax)
You also should factor in State Income tax which is 2% - 5.75%
3. Lastly, I apologize for a really dumb question but is a capital gain difference between what you bought the house for and what you sold it for?

Gain is calculated as adjusted basis from Sales price where adjusted basis is purchase price less depreciation plus improvements/additions. If you kept it as a home for the full time; you likely didn't have any depreciation.
[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
View Page
0 Reply
Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
The gain on a sale is a little more complex than shown above. The gain on the sale is the selling price, less selling costs and less your basis. Basis is where things get a little complicated. I'm assuming this is purely a residence and has never been a rental or investment property while you've owned i. Basis starts at the purchase price plus purchase costs. Any capital improvements also add to your basis. So, if you have, for example, finished a basement or added a room, the costs for these will add to your basis. Repainting, OTOH, is not a capital improvement. If you end up having a gain over the $500K limit, you should review major work you've done to the house with your accountant and see if any of these would qualify as capital improvements.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.