Do I have to pay taxes on the sale of my home if I'm over 65?

Selling your home can be a major life event, and it's important to understand the tax implications before you put your house on the market. One common question that homeowners have is whether or not they have to pay taxes on the sale of their home if they're over 65.

There are no current capital gains tax breaks based on age. If you meet certain requirements though, you may be able to exclude up to $250,000 ($500,000 if you're married filing jointly) of capital gains from the sale of your primary residence from your taxable income. However, there are some important exceptions to this rule.

Who qualifies for the home sale exclusion?

To qualify for the home sale exclusion, you generally meet the following requirements:

• You have owned and lived in the home as your primary residence for at least two of the five years leading up to the sale.
• You have not used the home sale exclusion in the past two years.

If you meet these requirements, you may be able to exclude the capital gains from your taxable income, even if you have a significant gain on the sale of your home.

What are the exceptions to the home sale exclusion?

There are a few exceptions to the home sale exclusion. For example, you may not be able to exclude the gain from your taxable income if:

• You sell your home to a family member.
• You used the home for business purposes.
• You rented out the home for more than two years.

If you are considering selling your home, it is important to consult with a tax professional to determine whether or not you qualify for the home sale exclusion and to calculate your potential capital gain.

How do I calculate my capital gain from the sale of my home?

To calculate your capital gain from the sale of your home, you'll need to subtract your adjusted basis from your sales price. Your adjusted basis is the amount you paid for the home, plus any improvements you've made to the home, and selling expenses. There are additional increases to basis for a primary household but improvements are the most common and any previous depreciation is recaptured which is a different type of gain.
For example, let's say you purchased your home for $200,000 in 2010. You made $50,000 in improvements to the home over the years, and you claimed $10,000 in depreciation. Your adjusted basis would be $250,000 ($200,000 + $50,000). If you sell your home for $300,000, your capital gain would be $50,000 ($300,000 - $250,000) along with the $10,000 being recaptured. If you qualify for the home sale exclusion, you can exclude up to $250,000 of your capital gain from your taxable income.

Here are some tips for calculating your capital gain from the sale of your home:

• Keep good records of all of your home expenses, including the purchase price, improvements, and depreciation.
• Use a tax calculator to help you calculate your capital gain
• Consult with a tax professional if you have any questions.

It is important to note that your capital gain tax liability is calculated from the capital gain tax bracket. Be sure to consult with a tax professional to get an accurate estimate of your tax liability.

Capital Gain Tax Brackets for 2023

• 0% for taxable incomes under $41,675 ($83,350 for married couples filing jointly)
• 15% for taxable incomes under $459,750 ($517,200 for married couples filing jointly)
• 20% for incomes over the 15% income levels.

Source: Internal Revenue Service

How do I report the sale of my home on my tax return?

Selling your home can be a big life event, and there are a few things you need to keep in mind when it comes to taxes. One important step is to report the sale of your home on your tax return.

To do this, you'll need to file Schedule D (Capital Gains and Losses). On Schedule D, you'll list the sales price of your home, your adjusted basis (which is the purchase price plus any improvements you've made to the home), and your capital gain (or loss).

There are many additional important facts about selling your house that may affect the treatment of any large transactions. Specifically for home sales, review IRS Publication 523 for the complete list of rules around selling your house.

5 Important Tips for minimizing your tax liability when selling your home:

There are a few things you can do to minimize your tax liability when selling your home, such as:

• Understand how to qualify for the home sale exclusion.
• Keep receipts of all improvements to the household
• Claim and record all of the deductions you're eligible for. When you sell your home, you can reduce taxable income for certain expenses, such as keeping records of home improvements and the cost of selling your home. Be sure to keep good records of all of your expenses so that you can review and claim them on your tax return.
• Consider selling your home in a year when you have other income deductions. If you have other income deductions, such as extensive charitable donations or medical expenses it may be reduce the taxes you pay when you sell the house. Consider selling your home in a year when you can claim these deductions to reduce your overall tax liability.
• Consult with a tax professional on the rules. A tax professional can help you understand the tax implications of selling your home and develop a plan to minimize your tax liability along with how to qualify the calculation.

Whether or not you have to pay taxes on the sale of your home if you're over 65 depends on a number of factors, including whether you qualify for the home sale exclusion and how much capital gain you have. If you have any questions about the tax implications of selling your home, you should consult with a qualified tax professional.