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How Capital Gains Tax is Calculated
- Capital gains tax on home sales is based on the difference between the selling price and your home's basis.
- Basis includes purchase price, closing costs, and capital improvements, which reduce taxable gain.
Capital Gains Tax Exclusion Rules
- To exclude capital gains tax, you must have owned and lived in the home for at least two of the past five years.
- You can exclude up to $250,000 (single) or $500,000 (married filing jointly) of gain.
Repeated Use of Exclusion Allowed
- The home sale capital gains exclusion applies repeatedly if ownership and residence requirements are met every sale.
- This powerful tax break can be used every two years, theoretically for a lifetime.