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Capital Gains Tax and Real Estate

Capital Gains Tax on Real Estate Sales: What Long Island Homeowners Need to Know

If you sell your Long Island home, you may be required to pay capital gains tax on the profit (if any) you make from selling your home or property. Capital gains tax is a tax on the profit you make from selling a capital asset, such as real estate, stocks, or bonds.

There are a few factors that determine whether you will have to pay capital gains tax on the sale of your home. Remember always to consult a CPA for the most accurate information:

  1. The length of time you owned the home: If you owned your home for less than one year, you would be required to pay capital gains tax on the profit you made from the sale at your ordinary income tax rate. However, if you have owned your home for at least one year, you may be eligible for a reduced capital gains tax rate.
  1. The amount of profit you made: You will only have to pay capital gains tax on the profit you made from the sale, not the total sale price. The profit is calculated by subtracting the cost of selling the home (such as real estate commissions and closing costs, even your new fence ) from the sale price.
  1. Your filing status and income: The amount of capital gains tax you owe may also be affected by your filing status and income. If you are married and filing jointly, you may be eligible for a higher capital gains tax exclusion amount.

There are a few exceptions to the capital gains tax rules for homeowners. If you sell your home and use the proceeds to buy a new home within two years, you may be able to exclude some or all of the profit from capital gains tax. Additionally, if you sell your home because of a change in place of employment, health, or unforeseen circumstances, you may also be eligible for an exclusion.

It’s important to note that capital gains tax rules can be complex, and you should consult with a tax professional if you are planning to sell your home to determine whether you will owe capital gains tax and how much you will owe.

*In general, capital improvements to real property are not subject to capital gains tax when the property is sold. Instead, the cost of the improvements is added to the basis of the property, which is used to determine the gain or loss on the sale.

For example, if you bought a house for $200,000 and later spent $20,000 on a new fence, your basis in the property would be $220,000. If you later sold the property for $300,000, you would have a gain of $80,000 ($300,000 sale price minus $220,000 basis). This gain would be subject to capital gains tax, but the cost of the fence would not be included in the calculation of the gain.

It’s important to note that this is a general rule and there may be specific circumstances where the cost of capital improvements is subject to capital gains tax. For example, if you sell the property within a year of making the improvement, the cost of the improvement may be treated as a selling expense, which is not included in the calculation of the gain.

It’s also worth noting that capital gains tax only applies to the sale of capital assets, which generally includes assets that are held for investment or business purposes. If the property being sold is your primary residence, you may be able to exclude some or all of the gain from capital gains tax under the rules for the primary residence exclusion.

Local Realty
80 Orville Dr. Suite 100 Bohemia, NY 11716
631-730-1489 office

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