Because of my low income, would I not be subject to capital gains taxes if I sell my home?

I have a house in California worth $2,000,000. I have been in the home for more than 30 years. The original cost was $70,000. I spent $50,000 on repairs and upgrades. My total income with Social Security and a small annuity payment is less than $30,000 a year. I have no other income or investments. Because of my low income, would I fall be subject to 0 percent capital gains taxes? Is there a rule determining how large the capital gain is because the home is a personal residence?

Social Security, Investing, Annuities, Real Estate
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3 weeks ago

Hi!  Advisor Kathleen Rehl’s answers your immediate question, and I like to add a thought to expand on selling a personal residence. Home sellers want to make sure that they don’t have a huge tax surprise as a result of the profit they make when they sell their home.

In your case, you are looking at a capital gains profit of almost $2 million, but your current income level keeps you from having to pay a huge tax. For others whose AGI is higher, they may owe cap gain tax on some or part of the profit.  Advisor Rehl touches on the Section 121 exclusion that lets a single taxpayer take $250,000 off the profit of the sale of their personal residence ($500,000 for a married couple. That exclusion can take some of the bite out of the cap gain tax on a home sale profit.

Another thing to be aware of for the Section 121 exclusion is that you don’t need to buy another house with the profit in order to qualify for the exclusion.  In your case you’ve been in your home 30+ years, so that means you are older like me. Years ago, if you sold a house and made money on it, you did need to buy another personal residence. However, in 2018 you don’t need to use that money for another home.

Best wishes to you, and thanks for writing.

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