Q. I read that if your income is less than 55k as HOH, you don't pay any capital gains tax. Is that true?
A. No. The portion of the first $55K of total taxable income, attributable to long term capital gain (LTCG) is taxed at 0%. Any additional capital gain is taxed at capital gains rate (15% until total income reaches the next tax bracket) instead of ordinary income rates.
Q. Can person #1 with the 50k income just claim the entire 300k gains and not pay any taxes on it?
A. No. For an HOH with $50K of other income (not including LTCG), only about $25K of his capital gain will be taxed at 0%.
Q. They both lived in 25% of the property (1 unit) for 2 years. I assume that means 25% of the gains can be tax free.
A. Yes, since each person's share of the 25% is less than the $250,000 maximum home sale exclusion amount, regardless of how you split it.
Q. Can one person claim all the gains?
A. No, in reporting the sale, you have to follow the money.
Q. How do they split everything?
A. You split the tax reporting in the same percentage as you split the proceeds from the sale. If the money went into a joint account, then you report the sale 50/50.
