Many home sellers are making a profit on their sale. But if that profit is high enough, they may be on the hook for capital gains taxes.
Capital gains taxes kick in when profits exceed $250,000 for single sellers or $500,000 for married couples who file together.
As home prices have soared, longtime homeowners may be more likely to see a tax bill.
“It’s become a huge part of the conversation now,” John Schultz, a certified public accountant and partner at Genske, Mulder & Co. in Ontario, Calif., told CNBC. Profits from the sale of a home are considered capital gains, but the rate at which they are taxed depends on the filer’s taxable income. The current rates are 0%, 15%, and 20%, CNBC reports.
Many rules affect the rate. For example, sellers must own and use the home as their primary residence for two of the five years preceding the sale, but those two years don’t have to be consecutive.
Some homeowners are converting a rental property to a primary residence for two years to get a partial exclusion. Certain home improvements can also affect the rate, Schultz told CNBC. For example, home additions, patios, swimming pools, or other improvements may qualify for exclusions if they can be shown to add value. Homeowners will need to keep detailed records.
CNBC recently highlighted other considerations for homeowners who are selling at a profit and are at risk of facing a steep tax bill.