How to minimize Capital Gains on the sale of your primary residence

Capital Gains…Red Hot Real Estate Markets could result in Uncle Sam getting some!

I recently listed a property for sale here in Fairfax. It was a lovely home in a very popular neighborhood. Not surprising in this red-hot real estate market,
we had over 50 showings, multiple offers and the winning offer bid $60,000 over the asking price.
I’m sure I’m not telling you anything you haven’t heard before or experienced yourself in this market.
While thrilled with the sales price, the owner may now be faced with capital gains. Yep, Uncle Sam wants to take advantage of these enormous capital gains that many sellers today are experiencing.

Subject to Capital Gains

Right now, the current tax code allows a profit of $250,000 for a single person and $500,000 for a married couple on their primary residence. Anything over that is subject to capital gains which varies based on the amount of the gain.

Chris Bird Real Estate Agent, CRS, 16 year tax Auditor for the IRS

I had the pleasure of attending one of Chris Bird’s infamous tax classes. Chris is a licensed real estate agent in Urbana, IL and a certified residential specialist (CRS) instructor. Prior to his real estate career, he worked for 16 years as an auditor for the IRS. So, he knows what he is talking about when it comes to taxes. Chris shared the formula for computing capital gains, which by the way is different from the equity in your home, along with some very sage advice.
Here it is: selling price – selling expenses – adjusted basis (cost + improvements) = profit subject to capital gains.
So here is an example. $750,000 (sales price) – $60,000 (cost to sell the house) – $385,000 (what you purchased the house for) – $50,000 (improvements you made to the house while you owned it) = $255,000. In this example a single person would be subject to capital gains on $5,000. A married couple would not.
His sage advice, record keepers win.

About the Author, Susan Mekenney

Susan Mekenney is a full-time Virginia Real Estate Agent with deep ties to her Virginia community. Originally from Ohio, she has lived in Northern Virginia since the early 70’s with her husband Bob of 40+ years and two sons. Susan is a strong advocate for client education. Susan wants her clients to know and understand the real estate market so they can make the best decisions for themselves and their families. Staying current on all aspects of the industry, including market trends, mortgage rates, real estate laws and technology, is an integral part of what Susan’s daily agenda is to keep her Clients informed.

Susan is a CRS, Associate Broker, and all around amazingly successful agent. Once someone has worked with Susan, they just keep coming back.

Click here for Susan’s contact information

 

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