We Made $460k In Gain From Sale Of Our Main Home. How Much Tax Do We Owe?

You can avoid paying capital gains taxes when you sell your primary home. Though there are certain rules that need to be met:

  • It’s a home that you personally live in the majority of the year.
  • You live in it for at least two out of the five years.
  • For single taxpayers, your capital gains exclusion is limited to $250,000.
  • If you are married though, the capital gains exclusion goes up to $500,000.
  • Temporary absences are also counted as periods of use even if you rent out the property during those absences.

Those two out of the five years do not have to be consecutive years or two years immediately before you sell the house.

Married couples do not have to live together to get the exclusion. As long as one spouse lives in it for two years, that’s good enough to claim the $500k exclusion. However, you cannot misuse the rule to live in two separate homes at once and get the exclusion for both. The IRS will automatically flag your return! Don’t try doing it!

If the couple is separate (tax status being Married Filing Separate ) and each of them own and live in their primary home, then each gets to claim the $250k exclusion on their individual taxes.

If there was a home office or a rental in the main dwelling unit, you might have to pay depreciation recapture tax though.

If the home office or the rental was not part of the main dwelling unit, then you would have to bifurcate the gains made on the sale of the property between the business taxation or the rental part and the part used as a home.

We use the primary residence exclusion with other advanced strategies for tax planning purposes.

Bottomline: You Owe $0 In Capital Gains Taxes Under the Primary Residence Exclusion.

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