Capital Gains Tax on Real Estate

Selling your home or a rental property at a gain? Here are important capital gains tax rules to keep in mind.

model house sitting on a pile of money
(Image credit: Getty Images)

All property owners should be familiar with the capital gains tax on real estate. Otherwise, you could be hit with a larger-than-necessary tax bill if you find yourself in certain situations. For instance, maybe you're thinking of selling your home or residential rental property that you own. Or you might unfortunately be experiencing financial trouble and are considering negotiating a short sale of your home with the bank. Other people may have had their home destroyed in a wildfire, hurricane or other natural disaster.

Although the residential real estate market has cooled down, your property has likely gone up in value since you purchased it. Eventually, when you dispose of the property, either voluntarily or involuntarily, you'll need to determine the income tax consequences with respect to that built-in appreciation. That's why knowing the rules on capital gains tax on real estate is important. Continue reading to find out how your gains may be taxed or not taxed in these situations and more.

Joy Taylor
Editor, The Kiplinger Tax Letter

Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.