Home sellers face surprise tax bills as house prices rise – are you affected?


The tax bill on profits can prove costly for home sellers, who are hit by surprising costs as housing prices rise.

Single sellers can generally exclude $250,000 and married sellers $500,000 from their taxable profits.


Rising home prices in the US could mean home sellers are hit with hefty capital gains taxes, as the exclusion rates haven’t changed in 25 years.

However, those amounts have not changed in 25 years.

House prices has skyrocketed during the pandemic, turning it into a seller’s market.

However, with big profits can come huge profits. do bill, report new York Times,

For decades, most Americans have been shielded from paying capital gains taxes on the sale of their homes as long as their gains do not exceed a certain threshold.

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Now, as in house prices EnhancedSellers can be vulnerable to large taxes, especially if they have owned the property for a long time and it has appreciated in value.

Factors Determining Whether You Will Pay Taxes

  • Eligibility for the capital gains “exclusion” you can deduct from your taxable gains when you sell: $250,000 for a single filer; $500,000 for a combined withdrawal.
  • This exemption is admissible only once in every two years.
  • You can add up to $250,000 if single, or $500,000 if married filing jointly, to your cost basis and the costs of any improvements made to the home.

In today’s environment, it is becoming easier to exceed the limits set in 1997 taxpayer relief act,

Typical selling price for previously owned Nuclear family homes have more than doubled in the past decade.

In fact, the median price of a current home sold in April was $391,200, the highest on record, and a nearly 15% increase from a year ago. National Association of Realtors,

As a result, the association sees increasing potential for capital gains taxes, Evan Lydiard, a certified public accountant and director of federal tax policy for the NAR, told the New York Times.

That mean is more skewed, as sales remain even stronger at the higher end of the market, where supply is stronger, according to CNBC,

Caleb Silver, Editor-in-Chief Investopedia told The Sun that things are likely to be more difficult for sellers.

Mr Silver said: “The homebuying market is facing a perfect storm of rising mortgage rates, thin supplies, and the prospect of a rising tax bill for homeowners this year and next.”

“Since tax assessments still lag behind appreciating home prices, higher tax bills will put pressure on existing homeowners, and may deter buyers from entering an already expensive market in most cities.”

Greg White, an accountant in Seattle, told the Times that the concern is particularly acute in high-priced markets along the coasts.

“It’s easy to go over the $500,000 limit if you’re in San Francisco, Seattle, New York or Boston.”

How to Qualify for Exclusion

To qualify for the exclusion, you must have a home and live as your main home.

Internal Revenue Service It also refers to your “primary residence” for at least two of the five years before the sale closes.

This is usually the address where you spend most of your time and is listed on documents such as your tax return, voter registration card and driving license.

The two years don’t have to be consecutive – you can have a separate main house for a period of five years.

Steps to reduce the amount of taxable profit

  • Deduct the costs associated with the sale of the home, such as real estate commissions and relocation and appraisal fees.
  • Increase your “basis” — the dollar amount on which the profit is based — by adding the cost of any improvements you’ve made to your home over the years to your purchase price.

If you do not qualify for a full exclusion, you may be able to claim a partial exclusion.

The IRS Provides a worksheetBut experts say it’s best to seek professional advice to ensure accuracy.

There’s also a limit to the number of times you can take the exclusion: only once every two years.

If you end up with taxable gains, the amount of tax depends on your federal bracket and how long you’ve owned the property.

Long-term capital gains tax rates, which apply to assets held for at least one year, are generally lower.

Short-term gains are taxed at ordinary income rates and some states may also impose their own capital gains tax.

Looking at the rising value of homes, a recent report Congressional Research Service stated that “policy makers may wish to reconsider the cap of $250,000 and $500,000”.

If exclusion amounts were raised to reflect changes in “average housing value” from 1998 to 2021, they would now be $650,000 for single homeowners and $1.3 million for married couples, according to the report.

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