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One of the big questions standing in the way of seniors selling their homes is whether they will have to pay taxes when they sell?

Angie Writes About Taxes

OUR GUEST BLOGGER: Angie Goodman, of the Goodman Group @ Keller Williams. She writes about how the proceeds of the sale of a home may be exempt from certain taxes. She has helped clients sell their homes and the homes of aging loved ones. We thank Angie for sharing her expertise with our friends, neighbors and clients.

Many seniors have lived in their homes for decades and are concerned with selling because of the tax liabilities.  If you or an aging loved one are contemplating selling, this may no longer be an issue.  This is because many people, not just seniors, don’t realize that the tax laws regarding capital gains taxes on personal homes have changed.

In 1997 Congress passed the Tax Payer Relief Act.  One provision of this bill eliminated capital gains on the sale of one’s personal home.  This means you owe NO tax.

There are limits to these capital gains exemptions.  For a single individual no taxes are due if the maximum gain is less than $250,000.  For couples the limit is up to $500,000.

For example, if you purchased your home for $100,000 and you sell it for $300,000, that’s a $200,000 gain and no capital gains taxes will be owed by the owner or owners.   If you bought your home for $300,000 and real estate has gone up astronomically allowing you to sell it for $800,000 and you are married, you still pay no capital gains taxes.

There are instances and locations where the capital gains limit may exceed the allotted amount, such as selling a home in a high cost area such as Boca Raton.  Should you exceed the $250,000 if you are single or the $500,000 married, your tax base may still be unaffected because of the basis of your sale.  This means you are allowed to claim on your taxes any capital improvements done on the home during your ownership. This is an area where you will certainly want to get advice from your tax accountant to determine whether or not taxes will be owed.

In the Tallahassee area, many of our homes will meet the criteria of being under the limits but always check with your tax professional regarding your own personal situation.

Another provision in the bill requires that the individual(s) must have lived in the home for at least two of the last five years.  If you rented it out for the last 3 years but lived in it prior to that time for at least 2 years, you are in the clear and no tax is due (again depending on the amount of the sale).  This is important if you or your loved one have lived in an assisted living facility and rented out the home prior to the sale.

The home can be a real asset to seniors who are moving into assisted living or making other arrangements and not planning to purchase another home.  The equity is profit that can be used to fund their new living arrangements and lifestyle.  So, when it comes to selling your personal home, don’t fear the Tax Man.

As with all tax matters, you should seek the advice of your tax professional regarding your specific circumstances. This blog post is for information purposes only.