You can, however, exclude up to $250,000 of gains when you sell if you are single and twice that amount if you are married.
Don't forget that you can add most maintenance and upgrade expenses to your cost basis, which can help a lot.
When I sold our home in CA in 2008, I added a couple hundred thousand dollars in such expenses to our cost basis.
A couple of years later, CA audited me on the home sale and in the end, they said, "Never mind. You don't owe us another penny."
I'd saved years and years worth of records, to include bills and cancelled checks for every dime we'd spent, so was 100% able to back up my data.
Grey Ghost's Link
But, certainly don't take my word for it. Do you own research, or seek professional advice.
Matt
Example:
We bought the home I referenced above for $720,000 (our original cost basis)and sold it 20 years later for $2,400,000. But because we'd spent over $200K redoing the kitchen and adding a man cave, I was able to add that cost the $720,000.
In addition, because we added a pond near the front entry, replaced one retaining wall and added another, extended the driveway, put on a new roof, cut down a couple of YUGE eucalyptus trees (one cost us $11,000!) and 'topped' a couple of others, replaced some carpeting with tile, etc., etc., etc., I was able to add another $100K-$200K to the cost basis. Then when we added the $500K on top of that, our adjusted cost basis was well over $1M.
Given CA does not have a special rate for capital gains (those gains are taxed as ordinary income) by keeping records and then using the $500K exclusion, we saved over $75,000 in CA taxes alone.
Funny story: I sent the auditor copies of my cancelled checks for the upgrades, etc., (some of which were twenty years old) and it was clear he'd never seen that before because he had to ask his supervisor if he could use those as evidence of our upgrade and maintenance expenses.
"There is no longer a requirement to re-invest it in another home to avoid taxes."
CORRECTION: There is no longer an ABILITY to roll capital gains into another home.
Prior to 1997, weren't you required to roll the full value of your home sale into another house, within 2 years, to avoid capital gains tax?
Please clarify.
Matt
Previously you had the OPTION to roll your gains into a new primary residence.
You would have been stupid not to do that, but it was an OPTION.
Now, however, that OPTION no longer exists.
Yeah I know, get tax advice from a pro.... and I will when/if the time comes.... but just curious.
Prior to 1997 rolling over your capital gains was an Option, not a 'requirement.' Since then, you cannot rollover those gains because they are capped @ $250K/$500K. That's also an Option.
So I guess it all comes down to what the meaning of the word 'is' is.
I think we're saying the same thing in different ways.
Matt
You can NOT roll ANY capital gains into a new primary residence.
You certainly want to take advantage of the $250K exclusion(s) on the residence you are selling, but that said, your cost basis on the new residence will be what you pay for it.
Period!
i.e. if you sell your CURRENT home do you get that $500,000 (if married) capitol gains exemption again as a sale of primary residence?
Topic 701 Exclusion :section 121
There is no 'one-time-lifetime exchange option' that I know of.
Each sale of a primary residence is subject to the law from 1997 and there is no 'roll up.'
When you say it's not an option to roll it into a new home. If you clear $200k on a home isn't it an option to pay $200k down on your next home?
That's what I wanted clarification about.
"When you say it's not an option to roll it into a new home. If you clear $200k on a home isn't it an option to pay $200k down on your next home? "
The exclusion is not Cash!
It's simply a way of not having to pay taxes on the gains of the home you are selling.
The lender on the new home will give you NO credit from that on the new loan you want.
If you are buying a new home for, say, $300,000 and the lender wants a 30% down payment, you will need to give the lender $90,000 in CASH, regardless of whatever capital gains exclusion you may have realized from the gain you had from the sale of your previous home.
But, that means if you clear $200K on the previous home and use $200K of the exclusion to avoid the capital gains taxes, that would indeed result in your having the $200 K to use towards payment of the new home.
Same kind of folks making me think about leaving at some point down the road. Not the same place I moved to 42 years ago...... not at all..... aloha pretty much dead and buried.....
