Have you ever heard that old joke about boats? That the two best days in the life of a boat owner are the day you buy it and the day you sell it. The joke is of course, many boat owners can’t wait to get rid of it.
In a different way you could almost say that about houses too. The day you buy it is a day to celebrate and the day you sell it, well, there’s plenty to celebrate then too. It’s largely because of that wonderful thing called the Capital Gains Exemption.
You probably know what that is, but just in case, let’s talk about it. The Capital Gains Exemption helps millions of homeowners keep a huge amount of profit when they sell. It says that if you are single and sell your home, you will pay no taxes on the profit up to $250,000. So, buy your house for $100,000 and years later sell it for $350,000 – no taxes. If you’re married it’s double that. No taxes on up to $500,000. Buy a place for $400,000 and later sell it for $900,000 – no taxes. It’s just incredible.
Now, if you’ve owned property for decades you might remember the old capital gains rule. The one that said to get the exemption you had to sell one place and then buy another one really quickly. That’s the way it used to be, but it’s not that way anymore.
Now what if you sell your house and make more than the $250,000 profit if you’re single? And more than the $500,000 profit if you’re married? One word – congratulations! Anyone who makes a profit like that in today’s market – well done. But if you do exceed those caps, you can possible pull them back by counting up all the improvements you’ve made. New deck, new kitchen, maybe even a new roof. They might count against your profit and bring it back down under the caps.
Now, full disclosure here. I am not an accountant and I am not a tax attorney. This is just general information. Definitely talk to a financial or legal professional to find out where you stand.
But what a great benefit. It helps retirees. It helps people trading up or trading down. If you sell and you have even a little profit, it helps you too. You don’t have to pay taxes on that amount either. It’s just one more way that homeownership can help you grow wealth over time.
Back to that joke about boats. I know, the best days when you own a house certainly include the day you buy it and the day you sell it. But let’s not forget all those days in between. The best moments of our lives often happen at home. It’s where you live that life. Where you build those memories. And where you know you belong.
So that boat analogy only goes so far. But I would agree that the day you sell your house can be a great one, thanks to way America supports homeownership with benefits like the Capital Gains Exception.