Understanding the Capital Gains Tax

If you sell your house for enough money, you may have to pay a capital gains tax on your capital gain, or profit. A capital gain is the difference between your home’s purchase price and its sale price minus the cost of any capital improvements you have made to it – for example, adding an addition to your house.

If you are single when you sell your home, you’ll get a capital gains tax exclusion of up to $250,000, which means you won’t have to pay taxes on the first $250,000 of any profit you may realize from the sale.

If you are married and file a joint tax return, you’ll get a $500,000 exclusion.

Whether married or single, you must have lived in your home for at least two of the five years prior to its sale to qualify for the exclusion.

If you move a great deal, you’ll be pleased to know that the capital gains exclusion is not a one-time thing: You can use it every two years. Should you end up owing a capital gains tax on the sale of your home and assuming you and your spouse are above the 15% income tax bracket, you will be taxed at 15%. If you’re at or below that tax bracket, you’ll be taxed at 5%. If you don’t know what tax bracket you are in, speak to your CPA.