Rising Home Sales Engender Capital Gains Tax Implications
As the American housing market heats up, more homeowners are finding themselves liable for capital gains tax upon selling their properties. Notably, in 2023, approximately 8% of home sales resulted in capital gains tax—a substantial increase from 2019, where the figure was less than half that. The Wall Street Journal referred to analysis from CoreLogic, a real estate data company, highlighting this significant rise in tax incidence among home sellers.
Understanding Capital Gains Tax on Home Sales
Capital gains tax is levied on the profit made from selling a property that has increased in value. However, not every home sale will trigger this tax. Exemptions apply, particularly for primary residences, where individuals may exclude up to $250,000 of gain from their taxable income, and married couples can exclude up to $500,000. Nevertheless, with housing prices trending upwards, an influx of sellers find their gains surpassing these exemption limits.
Strategies to Mitigate Capital Gains Tax
There are several avenues homeowners can explore to reduce or avoid capital gains tax. One common strategy is to reside in the property for at least two of the five years preceding the sale, thereby qualifying for the aforementioned exclusion. Homeowners may also invest in renovations and property improvements, which can increase the cost basis of the home and thus potentially decrease the taxable gain.
Another key consideration for those dealing with property and personal finance is the resources available to help navigate these complex matters. Indeed, companies like NerdWallet, Inc. NRDS, headquartered in San Francisco, offer valuable insights through their digital platform designed to offer consumer-oriented advice. By connecting individuals to various financial product providers, they provide guidance that could be crucial in managing property-related finances, including aspects like capital gains taxation.
taxation, realestate, investment