#8 - What Is Capital Gains

When you sell a house, you may owe taxes on your gain — the difference between what you paid for the house and what you sold it for, unless you qualify for an exemption as per the IRS.

Since 1997, up to $250,000 in profit ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the following criteria:

– You have lived in the home as your principal residence for at least two out of the last five years.

–  You have not sold or exchanged another home during the two years preceding the sale.

If you did not live in the property for at least 2 years of the last 5 you may want to consider a tax-deferred exchange for investment property sales, also known as 1031 Exchange, to defer capital gains taxes.

1031 Exchange: Named after the section of the tax code in which it is listed, the 1031 Exchange is a strategy and method allowed as per IRC Code 1031 for selling a property that’s qualified, and then proceeding with an acquisition of another property (also qualified) within a specific time frame. It isn’t as simple as it seems and there are dangers in the process, but it is the ideal solution for some. A 1031 Exchange requires professional assistance to be successful.

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