If you are one of those US Citizens who have sold his house for profit this year, you might owe the IRS Capital Gains Tax. The Capital Gains Tax applies to stock investors and real estate businesses. However, the IRS offers sizeable rebates, and one can avail of the benefits of these rebates reports gobankingrates.com.
The IRS stipulates that if a person has sold his home singly, he can exclude up to $250,000 of the capital gain from the sale of his house. The figure increases up to $500,000 of that gain if a person files a joint return with their spouse.
Any US Citizen Is Eligible For Exclusion
Any US citizen is eligible for this exclusion if he has owned and used his home as his primary residence for at least two of the five years before the sale. A person can still qualify for the residency test if they have the occupancy in a single block of time. However, the person must fulfill both the ownership and residency test during the five years before the date of the sale. Additionally, the person will not be eligible for the deduction if they have excluded the profit from selling another home during the two years before the sale of your primary home.
The remaining profit that is not eligible for the exclusion will be considered capital gain and will invite a federal tax at the rate of 0%, 15%, OR 20% depending upon the total taxable income.
Home Sale Profitability Shifting Significantly
Even though $500,000 might seem a massive sum that a profitable home sale may give and it may not affect your taxable base. However, the market has shifted by a significant margin in the last few years. In 2021 an average US home seller pocketed $94,092, up 71% from $55,000 two years ago. Therefore, if a person holds on to his home for five or ten years, his profitability after selling the home is bound to rise significantly. There are some exceptions in the eligibility test, and they are offered notably for divorced or separated, widowed, those who serve in the armed forces, and others.