This year’s hot real estate market could come with significant new capital gains taxes for home sellers

For those who have been selling their homes since the start of the pandemic, the real estate market looks quite pleasant. The lack of available inventory meant that many properties received a lot of competition, resulting in offers exceeding requests.

But the New York Times describes how the pandemic has upended the typical housing market over the past few years, and now there may be repercussions in the form of taxes.

In short, these increased home deals are a double-edged sword, as they initially give you more, but could also push you into a higher tax bracket.

Capital gains taxes kick in for single filers at $250,000, and for married couples, they start at $500,000.

Surely the average American household isn’t making half a million dollars a year, but factoring in a competitive offer on the sale of your home? This could put you over that threshold.

The New York Times mentions how, in recent years, the average sale price of a single-family home has risen to $353,600. And if you were perhaps considering flipping a few properties when today’s market has many buyers, that could hurt you as well.

These previously mentioned exclusion amounts for single filers and married couples. You are only eligible for these if you have actually lived in the house as your primary residence for at least two out of the last five years. So, in essence, you only get this tax relief on your primary residence.

There are ways to avoid being eligible for capital gains tax. For example, any necessary improvements you have made to the home can be taken into account at income tax time to help you meet this limit. You can also postpone the sale of your home until you meet this two-year eligibility to avoid being penalized.

Fred Hubler, chief wealth strategist for Creative Capital Wealth Management Group, which offers fee-based advice and access to accredited investments, told BUCKSCO Today that “there are several exceptions to the general rules when it comes to real estate and income tax.

“You definitely want to discuss your particular situation with your accountant or financial advisor,” insists Hubler. “In many cases, sellers are ‘negotiating’ and may not have flexibility in the process. However, if you have the flexibility and meet the requirements as an accredited investor, you have the option of deferring capital gains taxes from the sale of your primary property or a secondary property.

Ultimately, the current housing market has only sparked discussion about whether income limits for married couples and single filers should be increased. They have stagnated since 1997, when prices for everything else have only gone up.

If you want to know more about the potential taxes that many may now have to pay on their homes, read the New York Times story here.


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