Will Selling Your Home Increase Your Tax Bill?
With home prices rising 20% nationwide in the past year and in some markets, even dramatically more, many homeowners are excited about the equity in their homes. In the past, most homeowners were not concerned about profit from the sale being taxed but some may be surprised. The profit homeowners make on the sale of their homes have enjoyed a generous exclusion. Since 1997, for qualified sales, single taxpayers exclude up to $250,000 of capital gain and married taxpayers filing jointly, can exclude up to $500,000 of gain. Prior to the Taxpayer Relief Act of 1997, homeowners over the age of 55 were only allowed a once in a lifetime exclusion of $125,000. The new rule greatly increased the amount of excluded profit to the extent that most homeowners did not think about paying tax on the profit from their principal residences. Section 121, commonly called the Home Sale Tax Exclusion, requires that you owned and used the property as your principal residence for two out o