What do I need to know about capital gains?
If you are coming up on the three-year deadline to qualify for a capital gains tax exclusion, you may want to take a hard look at whether it’s time to get out of the investment. Are you aware, however, that you are running up against your deadline for the capital gains exclusion on the sale of that house?
If the home is something you intend to keep until the day you die, then I won’t strenuously argue against your hanging onto it. However, there’s also a case to be made for unlocking the equity in that property now and using it for a more profitable investment.
This Forbes article further breaks down how the capital gains exclusion works – and a major mistake that homeowners make in this realm. The home sale exclusion means that when you sell your primary residence for a gain and have lived in it for at least two of the five years before the sale, you won’t have to pay taxes on $250,000 of that gain. If you’re a couple, that number jumps to $500,000. But, the article argues, careful preservation of records relating to home improvement will offer a means of sheltering even more money.
Sometimes this isn’t easy. “It’s difficult for most people when they go to sell their home to come up with the cost basis,” Los Angeles-based CPA and tax partner at Nigro Karlin Segal & Feldstein Laura DiMaggio told Forbes. “They remember what they paid for it, but it’s cumbersome to add up all of the improvements they’ve made over the years.”
Doing so, however, can be crucial. Keep in mind that you’ll need to have records that can back up your home’s adjusted basis. In addition, improvements such as a new sprinkler system or an alarm system differ from repairs, which maintain your home but do not prolong its life or add value, so are not added to the cost basis.
I’m happy to discuss this with you. Get in touch.
Dreaming of San Francisco? Cece Blase offers local advice to San Francisco buyers, sellers and owners– and feeds the dreams of those who wish they could live in Tony Bennett’s ‘City by the Bay.’ Call 415-577-0809 or email firstname.lastname@example.org. www.ceceblase.com