Your House Sale Profits Can Be Eaten Up In Paying Capital Gains Tax

They say there are only two certainties in life - death and taxes. The problem is that unlike death which is an one off event, there are many forms of taxes that one has to pay.

One of the most controversial is Capital Gains Taxes which sneak up on people just when they think they have had a big windfall from the profitable sale of their homes.

Just say you purchased a house several years ago for $525,000 and you are thinking of selling because you have received a sale valuation of $1.5 million. Before you start the celebrations there are a few things to take into consideration. Under tax law the first $250,000 in capital gains is tax exempt, but what about the rest ?

If you get the $1.5 million, you shoot to the top of the tax bracket for income (that’s any income, be it salary or profit from a sale of a house)  which means that if you are filing as an individual, you will be taxed at 39.6 percent which is the common rate for anyone earning over $415,050 in any tax year.  People with income under that amount pay capital gains tax at a 15% rate.

You may be able to avoid the higher capital gains tax, if you claim all the improvements you've made to the house, along with other expenses such as selling costs etc , but overall if you’re not putting all your profit into buying another primary residence, Uncle Sam will want his share.

Best advice:  Before you sign to sell, check things out with your accountant, tax expert, or your bank.


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