Real Estate Capital Gains for Homeowners

Real Estate Capital Gains for Homeowners

Jan 26, 2016

In real estate, capital gains are the difference between the purchase price of your real estate and the price you sell it for. Capital gains tax is what you pay on that difference, after adjusting for a variety of exemptions, deductions and tax breaks.

The tax on capital gains income is calculated separately from the tax on your regular income and often at a different rate. In addition to federal capital gains taxes, most states, including California, tax the gains too.

In most instances, the real estate exemption rules are as follows:

  1. If you are single, you can make up to $250,000 in profits on your home sale before you have to pay taxes.
  2. If you are married, you can make up to $500,000 in profits before paying capital gains tax.

To qualify for the exemption, you have to meet all of the requirements:

Must be your principal residence

This tax break is designed for people who are selling the home they live in, not investment property. You have to live in this residence for two out of the last five years. There are no limits on how many times you can use this as long as you meet the two-year requirement. As far as living in the home for two out of the last five years, there are no hard and fast rules regarding this situation. You could have lived in the home the first year; rented it the next three, and lived in it again in the last year and you would be fine as far as the capital gains exclusion goes.

This does not apply to your vacation home

Remember that selling a second home does not yield the same tax benefits. Even if you move into the second home and live there for two years, some of the profit from the sale will still be taxable, based on how long the residence was used as a secondary home.

Understand your new spouse’s home sale history

Although the law is fairly lenient on residency times for marriages, it is not so lenient on previous uses of the exclusion. If your new spouse used the home sale exclusion within the past two years – like selling his own house to move in with you – this will impact your ability to use it for the current home sale. If he just sold the house, you will need to wait a full two years before you can take advantage of the full exclusion. You may be able to get a partial exclusion though, depending on your situation.

Special Provisions for Extenuating Circumstances

The military tax exclusion

Being in the military has its benefits when it comes to capital gains and selling a home. Because of being deployed, those in the military often find it hard to meet the residency rules and end up paying taxes when they sell. A law put in place in 2003 exempts military personnel from the two-year use requirement mentioned above for up to 10 years, letting a service man or woman qualify for the full exclusion whenever they must move to fulfill their service commitments. There are also additional tax benefits for being a veteran that should be understood.

Your spouse passes away

Another provision in the tax law was changed in 2008. This change takes into account the special circumstance an owner faces after their spouse dies. Previously in order to exclude the full profit amount excluded from taxes the surviving spouse had to sell within the same year of the death. The change allowed the widower to have up to two years to sell the property without facing the burden of paying taxes. As long as the surviving spouse sells within the two years window they will be able to exclude the full amount of profit.

Important: Use Trusted Professionals for Advice

It is very important to get the advice of trusted professionals (tax attorneys, real estate agents, financial planners, etc.) to answer questions and provide guidance.

If you have any questions about real estate please give me a call and I can provide a listing of resources for you to contact to get further information and help.

Bruce Ballatine

Bruce Ballatine, SRES, CSA is a Realtor Associate with Evergreen Realty. CalBRE #001783833. He can be reached at (949) 632-2923 or bruce.evergreen@cox.net

Latest News

Travel Can Be Tough on Your Legs

Health & Wellness Livia De Los Rios

Travel Can Be Tough on Your Legs

Medical compression stockings and socks are a travel essential Many people travel long distances and have to r...

Sorbet Magazine Celebrates Its September Issue!

Business Showcase Sorbet Mag

Sorbet Magazine Celebrates  Its September Issue!

It’s impossible to say what we love most about our issue release parties, especially the most recent one at V...

The Escher String Quartet Opens Segerstrom Center’s 2018-2019 Chamber Music Series

Entertainment Sorbet Mag

The Escher  String Quartet  Opens  Segerstrom Center’s 2018-2019  Chamber Music Series

Thursday, November 1, 2018 in Samueli Theater Segerstrom Center for the Arts launches its 2018-2019 Chamber Se...

Segerstrom Center Kicks Off Its 2018-2019 Jazz Season With Jazz Master Ahmad Jamal

Entertainment Sorbet Mag

Segerstrom Center Kicks Off Its  2018-2019  Jazz Season  With Jazz Master Ahmad Jamal

Segerstrom Center for the Arts presents Grammy® Award Lifetime Achievement Award Winner Ahmad Jamal for one pe...

Beyond the Books Nadia Milner delivers "Top Notch Services"

Entertainment Jody Robinson

Beyond the Books  Nadia Milner delivers "Top Notch Services"

I remember when one of my college friends was appointed Payroll Specialist for a large company in Pasadena. Whe...

Ready for Open Enrollment?

Health & Wellness Sorbet Mag

Ready for  Open Enrollment?

In a few weeks, you’ll be making important choices about next year’s health plan. As you consider your opti...

Making Educated Choices for Your Loved One’s Care

Education Jody Robinson

Making Educated Choices for Your Loved One’s Care

A Q & A with Derek Mannion, founder of Alliance Eldercare You think it might be time to consider options f...

Lea Michele and Darren Criss Continue LM/DC Tour With North American West Coast Dates

Entertainment Sorbet Mag

Lea Michele  and  Darren Criss  Continue LM/DC Tour With North American West Coast Dates

November 2, 2018  in Segerstrom Hall Following the demand of fans and rave reviews, actors and musicians ...

Drug Free, Surgery Free & Needle Free: A New, Proven Treatment to Reverse Erectile Dysfunction

Health & Wellness Jody Robinson

Drug Free, Surgery Free & Needle Free:  A New, Proven Treatment to Reverse Erectile Dysfunction

A Q & A with Dr. Michael DeYoung, M.D., LaSara Medical Group Men with erectile dysfunction (ED) often suff...

Pilates and Yoga for the Neck

Health & Wellness Align Pilates Team

Pilates and Yoga for the Neck

There is no shortage of reasons why people suffer from neck pain, but primarily, the root cause is due to impro...

How Can I Tell If I Have Skin Cancer?

Health & Wellness Kristy Fleming, MD

How Can I  Tell If I Have  Skin Cancer?

People of all ages get skin cancer. Checking your skin can help you find skin cancer early when it’s highly t...

Broadway’s Smash Hit Beautiful The Carole King Musical returns to Segerstrom Center for the A…

Entertainment Sorbet Mag

Broadway’s Smash Hit Beautiful   The Carole King Musical   returns to  Segerstrom Center for the Arts

October 9 - 14, 2018 Back by popular demand, Beautiful – The Carole King Musical returns to Segerstrom Cente...

The Art of Craft @ The Brewhouse in San Juan Capistrano

Business Showcase Jody Robinson

The Art of Craft @ The Brewhouse in San Juan Capistrano

Let’s play a quick game: I’ll say a word and you write down the first thing that comes to mind. Ready? Beer...

Thinking Inside the MedBox. The New Standard in Medication Management Offers a Better Way to Dispens…

Health & Wellness Jody Robinson

Thinking Inside the MedBox. The New Standard in Medication Management Offers a Better Way to Dispense Prescriptions

In a recent conversation with my mother, I discovered something. Something that was a cause for pause as I pond...

Upcoming Events at Segerstrom Center for the Arts

Entertainment Sorbet Mag

Upcoming Events  at Segerstrom Center for the Arts

The Australian Pink Floyd Show September 6, 2018 Segerstrom Hall The 2018 Australian Pink Floyd Show Tour is ...

Segerstrom Center for the Arts Announces 2018 – 2019 Jazz Series

Entertainment Sorbet Mag

Segerstrom Center for the Arts Announces  2018 – 2019  Jazz Series

Ahmad Jamal Quartet and Shahin Novrasli Kenny Barron Quintet • Kurt Elling Christmas Branford Marsalis Quarte...

Compassionate Caregiving: Your Home Care, Inc.

Health & Wellness Jody Robinson

Compassionate Caregiving:  Your Home Care, Inc.

In-Home Care and the New! Senior Social Club & Stay Care Center in Laguna Woods Village Over the past deca...

RODAN + FIELDS: Changing Skin. Changing Lives.

Health & Wellness Jody Robinson

RODAN + FIELDS:  Changing Skin.  Changing Lives.

Friends are good for a great many things. Laughing with you, getting out of tight spots every once in a while, ...

Get Your Game Together with No Bogeys Golf

Entertainment Ann Laurence

Get Your Game Together with No Bogeys Golf

Everyone knows that you’re not supposed to pick favorites when it comes to family. But let’s be honest, we ...

Medicare: A + B = ? Where does D come in?

Insurance Denice Merrill

Medicare: A + B = ?   Where does D come in?

I’m getting so much information in the mail! What do I need to keep? I am the presenter at the Mission Hospi...