{"id":4841,"date":"2018-07-23T16:57:14","date_gmt":"2018-07-23T23:57:14","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=4841"},"modified":"2024-05-29T10:16:50","modified_gmt":"2024-05-29T17:16:50","slug":"do-i-have-to-pay-taxes-on-home-sale","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/do-i-have-to-pay-taxes-on-home-sale\/","title":{"rendered":"Here\u2019s How to Make Your Home Sale Tax-Free: Do I Have to Pay Taxes on Home Sale?"},"content":{"rendered":"

DISCLAIMER:\u00a0<\/em>This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice.\u00a0<\/i>HomeLight<\/i><\/span>\u00a0<\/i>always<\/i><\/span>\u00a0<\/i>encourages<\/i><\/span>\u00a0you to reach out to an advisor regarding your own situation.<\/i><\/p>\n

You cleaned every surface, opened your home to a bunch of strangers, and negotiated like a pro. After all that you can finally say you\u2019ve made it to the finish line. You sold your house (phew!) and for a nice profit to boot!<\/p>\n

With a lump sum so liquid you could run it through your hands, your grip may tighten. How much of the profit on your home is truly yours, and how much will Uncle Sam be reaching into your pocket to collect?<\/p>\n

It\u2019s true, the government wants a piece of any \u201ccapital gains\u201d<\/a> (aka profit) you make from selling off assets like stocks, bonds or property. Lucky for you, the American dream of homeownership is more than just a philosophy. It\u2019s also the basis for generous tax breaks.<\/p>\n

Whether you have to pay taxes on the sale of your home depends on how much you made, how long you lived in the house and any life circumstances that may qualify you for additional breaks.<\/p>\n

Here\u2019s exactly what you need to know to figure out how much money (if any) from the sale of your home you\u2019ll need to give back to the government.<\/p>\n

First Off, How Much Did You Make On Your Home Sale?<\/h2>\n

The capital gain on the sale of your home is calculated by subtracting your \u201ccost basis\u201d from your sale price; the remaining balance is considered your capital gain and is the taxable amount.<\/p>\n

Say what?<\/p>\n

Let\u2019s start with the cost basis. Simply put, it\u2019s the original cost of the home (what you paid for it).<\/p>\n

If you inherited the home, the cost is the fair market value of the home at the time that the former owner died. If you built your home from scratch, you can throw in land and building costs.<\/p>\n

The \u201cadjusted cost basis\u201d accounts for any costs you poured into your home in the form of \u201ccapital improvements.\u201d<\/p>\n

Figure In Capital Improvements to Reduce Your Tax Burden<\/h2>\n

Capital improvements are things like kitchen and bath remodels, or big additions like a swimming pool or new roof. They minimize your capital gains by adding to your adjusted cost basis.<\/p>\n

Figuring in capital improvements will be much easier if you\u2019ve kept a record of improvements you made over the course of ownership of the house, so make sure you always hang onto those receipts. Don\u2019t forget that capital improvements do not include items necessary for the maintenance and repair of your home\u2014only those improvements that have added to or increased your home\u2019s value.<\/p>\n

Toby Mathis, Esq<\/a>., a founding partner of Anderson Law Group, tax law specialist and real estate investor who knows the ins and outs of real estate tax liability and exclusions, shares some capital improvement costs that people commonly overlook:<\/p>\n