Capital Gains in Real Estate
Understand capital gains taxes on real estate, learn how to reduce your taxable profit through home improvements, and discover exemptions for your primary residence.
What Are Capital Gains Taxes and What Can You Do Now to Reduce Them Later?
If you’ve owned your home for a long time or have seen substantial appreciation, you might be wondering about capital gains taxes and how to reduce them when you sell.
Here’s what you need to know:
Long-Term Capital Gains Taxes
These taxes apply to the profit made when you sell real estate you’ve owned for more than one year. They are typically taxed at lower rates than short-term gains, which are treated like regular income.
What Counts as “Profit” in Real Estate?
Profit equals the sale price minus your cost basis. Your cost basis includes:
- The purchase price of the property
- Closing costs and sales expenses
- Qualifying capital improvements or investments
How to Reduce Potential Capital Gains Taxes
You can reduce your taxable profit by increasing your cost basis through improvements that:
- Increase the home’s value
- Prolong its useful life
- Adapt it to new uses
Examples of qualifying improvements may include:
- A new roof
- A new HVAC system
- Replacing old windows with energy-efficient ones
- Kitchen or bathroom upgrades
Capital Gains Tax Exemptions
If you’ve owned and used your home as your main residence for at least two of the last five years before selling, you can exclude up to $250,000 (single) or $500,000 (couple) of capital gains from taxes.
Always consult your accountant or tax attorney for personalized advice and accurate calculations.
If you want to discuss how capital gains might affect your real estate plans, I’m happy to help. Reach out to Amie Pisano.
914.715.2632
