Capital Gains Tax

[jf313]

HI, I would like to know approximately how much capital gains tax (on a house sale) I could anticipate paying in the following scenario.... House purchased in 1999 for $81,000. Dallas County Tax Assessors have based my property taxes on $481,000 sale price (their price, not a real estate agent). I am single so I assume that I will get a $250,000 deduction. i.e. $481,000 - 81,000 - 250,000= 150,000. So, what is the tax rate/capital gains on my scenario? And will that $250,000 deduction disappear after 2025? I am also trying to decide on whether to sell in 2025 or 2026. 

Thanks,

jf313

[TeriH]

Great Question!

Your math is spot on  for an anticipated $150k capital gains.  You would want to add to that basis of $81,000 if you make any capital improvements over time.  That would increase your basis and reduce your capital gain.

The capital gains calculation sits atop the tax calculation.  You said you are single, therefore at $125,000 gain would have a 15% capital gains tax.  The bracket is $47,026 to $518,900 for that 15% rate. 

There is no way of know what tax rates will do in the future.  If only we had a chrystal ball.  The only thing we know for certain, is what they are today.

[marctu · Accepted solution]

The Long-term capital gains tax rates for the 2024 tax year are as follows:

FILING STATUS	0% RATE	15% RATE	20% RATE
Source: Internal Revenue Service
Single	Up to $47,025	$47,026 – $518,900	Over $518,900
Married filing jointly	Up to $94,050	$94,051 – $583,750	Over $583,750
Married filing separately	Up to $47,025	$47,026 – $291,850	Over $291,850
Head of household	Up to $63,000	$63,001 – $551,350	Over $551,350

So to add to your fact pattern, you have been in the house for 25 years at this point.  I am assuming you have made at least one capital improvement during this time.  Publication 523 should be looked at.  Specifically page 10.  This is just one of the areas you should look at:

Additions

Bedroom, Bathroom, Deck, Garage, Porch, Patio

So what you paid for the home $81K  is not your adjusted cost basis.   Your adjusted cost basis would include all the improvement that you have made over your long-term home ownership.  

Also remember that the costs of the purchase are additions to the $81K you paid for the home.   When you sell the home those costs are also adjustments.

I would go over this all before seeing what you think your tentative gain is.

Now to answer the last part of the question, no one knows what future tax policy will be.  The Section 121 exclusion predates the Tax Jobs and Cuts Act that expires at the end of 2025.   So your guess is as good as mine on this.   After you recalculate what your tentative gain is you can make a better decision.  

Thanks again for the question @jf313   

All the best,

Marc 

Employee Tax Expert

[jf313]

Thank you TeriH. So, if I understand you, I can also deduct what I paid for siding, kitchen update, new water and sewer lines (and I've even been told the real estate agent's commission). If so and that brings the difference below $47,000, would I still have to pay capital gains but at a lower tax rate?

jf313

[jf313]

Thank you very much Marctu....Publication 523 was extremely helpful!!

[TeriH]

Yes.  Do your home work as to what you can add in to increase basis.  Normal repairs don't count but capital improvements do.  See this IRS publication 523, starting at the bottom of page 8,  for specific examples of what does and does not count for improvements. 

If you're saying the gain is now $47k instead of $150k, then yes, you'd owe capital gains on the $47k.  That will be a far lighter tax bill than on $150k.

[marctu]

You are welcome @jf313