Question: I'm thinking about selling my house and then renting for a while. Will I have to pay higher capital gains taxes on my home sale because I'm not rolling over the money to a new house?
Answer: No. You're thinking of the old law, under which people could delay paying taxes on their home-sale profits if they rolled over their gains into the purchase of a new house. But the rule changed in 1997 and now lets people exclude a big portion of their home-sale profits from taxes, whether or not they buy a new house.
The specifics depend on how long you've owned the house and your tax-filing status. You can exclude from taxes up to $500,000 in gains on the sale of your home if you're married filing jointly (or up to $250,000 if you're single), as long as you've lived in the house for at least two out of the past five years. So, for example, if you're married and bought a house several years ago for $300,000 and then sell it for $700,000, you won't have to pay taxes on the $400,000 in profit.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If your profits are higher than the threshold, there are still ways to minimize the taxes. To calculate the size of your profit, take the sales price of the house (minus certain expenses, such as an agent's commission and any points you paid for the buyer) and subtract the adjusted tax basis, which is the original cost of the home plus certain settlement fees or closing costs you paid. You can also add to the basis the cost of major home improvements, such as a new roof; a remodeled kitchen; the addition of a room, deck or porch; or a new heating and air conditioning system. (Basic repairs and maintenance don't count.) Keep records of the cost of the improvements until three years after you sell your house. See When It's Safe to Shred Your Tax Records for more information.
If you haven't lived in the house for two of the past five years, you may still be able to exclude part of your gains from taxes if your move was prompted by changes related to work, family or health. These include a divorce, death of a spouse, the birth of two or more children from a single pregnancy, the need to obtain or provide health care, and a new job that is at least 50 miles farther from home than your old work location. See IRS Publication 523, Selling Your Home, for more information about the calculation.
-
Stocks Slip to Start Fed Week: Stock Market TodayWhile a rate cut is widely expected this week, uncertainty is building around the Fed's future plans for monetary policy.
-
December Fed Meeting: Live Updates and CommentaryThe December Fed meeting is one of the last key economic events of 2025, with Wall Street closely watching what Chair Powell & Co. will do about interest rates.
-
This Is Why Investors Shouldn't Romanticize BitcoinInvestors should treat bitcoin as the high-risk asset it is. A look at the data indicates a small portfolio allocation for most investors would be the safest.
-
It’s Not Too Late to Boost Retirement Savings for 2018retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
-
Ways to Spend Your Flexible Spending Account Money by March 15 Deadline
spending Many workers will be hitting the drugstore in the next few days to use up leftover flexible spending account money from 2018 so they don’t lose it.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
When You Can Expect to Receive Your Tax Refund
taxes The quickest way to receive your tax refund is to file electronically and have the money directly deposited into your bank account.
-
How a Move Can Change Your 529 Plan Tax Deduction
529 Plans The tax deduction you get for contributing to your state’s 529 plan can disappear if you move to another state.
-
Tap an IRA Tax-Free With an HSA Rollover
IRAs You can convert tax-deferred money in a traditional IRA into tax-free cash by rolling it over to a health savings account and using it to pay for medical bills.
