One of the most rewarding tax benefits of selling a home is the home sale capital gains exclusion.
If you sell your home for more than you bought it for, the profit (capital gains) you earn may be taxable. However, if you qualify for the home capital gains exclusion, you can exclude up to $250,000 (if single) or $500,000 (if married and filing jointly) from getting taxed!
To get this tax benefit for home sellers, you will have to meet certain conditions. Most importantly, you must have owned and lived in the house for at least two years in the five-year period before you sold it.
When calculating the original cost of your home for the IRS, there are some things you can add to the original price. These include:
- Qualifying home improvement you have made to the home.
- Legal and other fees related to the sale of your home.
Reporting these costs to the IRS can help reduce your taxable gains and allow you to keep more of the money you make from selling your home.