One question I've been getting more often lately is whether homeowners will owe capital gains tax when they sell.

The answer is: maybe.

For most people selling their primary residence, the answer is still no. However, with home values increasing significantly over the past few decades, more homeowners are finding themselves closer to the IRS capital gains exclusion than they expected.

If you've owned your home for a long time, it's worth understanding how it works before you put your house on the market.

The Capital Gains Exclusion

If the home has been your primary residence for at least two of the last five years, the IRS generally allows you to exclude up to:

• $250,000 in capital gains if you're single.
• $500,000 if you're married filing jointly.

If your gain exceeds those amounts, you may owe tax on the portion above the exclusion.

Don't Forget About Your Improvements

One thing many homeowners overlook is that your original purchase price isn't the only thing that matters.

Certain improvements you've made over the years can increase your home's cost basis, which can reduce your taxable gain.

Examples include:

• New roof
• Kitchen or bathroom renovations
• Room additions
• HVAC replacement
• Impact windows and doors
• Other major capital improvements

If you've lived in your home for 20 or 30 years, those projects can add up. It's a good idea to keep records of them if you still have them.

Who Should Be Paying Attention?

This isn't something every homeowner needs to worry about.

But it's definitely worth discussing with your CPA if:

• You've owned your home for decades.
• You purchased before values skyrocketed.
• You own a waterfront or luxury property.
• Your home has appreciated substantially over the years.

Many Florida homeowners are sitting on much more equity than they realize.

Before You Sell

If you're thinking about selling, it's a good idea to have two conversations before your home hits the market.

The first is with your Realtor to understand what your home is worth.

The second is with your CPA or tax professional to determine whether capital gains could become an issue and what documentation you should gather before closing.

Every homeowner's situation is different, so it's always better to know ahead of time than be surprised afterward.

If you're curious what your home is worth in today's market, I'd be happy to put together a market analysis and walk you through the current value of your property. 

Contact:

Adi Rakanovic

(727) 858-7882

[email protected]

Disclaimer: This article is intended for general informational purposes only and should not be considered tax or legal advice. Every homeowner's situation is different. Before making any decisions related to capital gains taxes or the sale of your property, consult with a qualified CPA or tax professional.