Arizona Capital Gains Taxes Could Put a Dent in Rising Home Values
Remember good ole Capital Gains? Now that properties have been flying off the market for nearly 2 years, and home prices are on the rise, many Arizona homeowners might be anxious to sell and get the money out of their homes. Sellers need to be cautious about potential capital gains taxes. Below is a good recap on the Capital Gains rules.
Your “Main Home” and Capital Gains Taxes?
If homeowners have lived in their “main home” for less than two years, they will be liable to pay capital gains taxes. However, if they have lived in their home for at least two years out of its five years prior to the date of sale, they may be able to exclude up to $250,000 of their gain from the sale if they are filing their taxes individually, or $500,000 when filing a joint return.
The IRS defines a “main home” as the one you live in most of the time. The two-year period required to live in it while owning it to get the capital gains exclusion does not have to be continuous.
What to Do When it’s Time to Sell Your House
Sellers can also avoid capital gains taxes when selling their home when these conditions exist:
- If they owned or lived in a primary home for a total of at least one year and became physically or mentally disabled and could not care for themselves, the time that they live in a facility licensed to care for people with that disability can count as time lived in their primary home. They must still own the home for at least two years.
- If their previous home was destroyed or condemned they can avoid capital gains tax when selling their replacement home if the ownership and use of the combined homes meet the two-out-of-five-year exclusion.
- If they or their spouse are on qualified official extended duty in the Uniformed Services, the Foreign Service, or the intelligence community, they may elect to suspend the five-year test period for up to 10 years. You might advise them to check IRS Publication 523, Selling Your Home, to get all of the information they’ll need to make an informed decision. They may need to wait another month or two before putting up the “For Sale” sign so they can save thousands on capital gains taxes.