If I make under $40,000 a year do I have to pay capital gains tax on a home I lived in for 5 years and recently sold?

[Mike9241]

no one can answer because you didn't provide the profit or other info. as single you would likely be able to exclude $250,000 of the gain. see IRS PUB 523 for more info.

ttps://www.irs.gov/pub/irs-pdf/p523.pdf 

[Opus 17]

Possibly, it depends on how much gain you have.  If you owned the home at least 2 years and lived in the home at least 2 of the past 5 years, the first $250,000 of gain is tax-free.  This is the section 121 home exclusion.  Any gain over that will be taxed according to the normal rules.  Your gains are added to your other income to determine your capital gains rates.  For example, the top of zero percent rate for 2023 is $44,625.  If your other income was exactly $40,000, then the first $250,000 of gains is excluded, the next $4625 is tax-free, and anything more than $254,625 is taxed at 15%. 

[redhottiescottie]

So my taxable income at the end of every year is around $25,000.  I sold the home for $500,000.  I owed $164,000 on that home.  I cleared around $308,000.  I immediately purchased another home for $273,000.   I lived in the 1st home for 5 years and was my primary residence.  I am a widow so I'd fall under the single status.  

[VolvoGirl]

But what is the gain?  It's not what you owed or the net proceeds but the purchase price 5 years ago.  Mortgage doesn't matter.   Your gain or loss is just the sales price minus cost.  And buying another house doesn't matter anymore.   

[Opus 17]

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@redhottiescottie wrote:

So my taxable income at the end of every year is around $25,000.  I sold the home for $500,000.  I owed $164,000 on that home.  I cleared around $308,000.  I immediately purchased another home for $273,000.   I lived in the 1st home for 5 years and was my primary residence.  I am a widow so I'd fall under the single status.  

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Your gain has nothing to do with the amount of the loan or the net proceeds.  Your gain is the difference between your cost basis (what you originally paid) and the selling price.  Both your cost basis and selling price can be adjusted for certain items that are described in publication 523.

https://www.irs.gov/forms-pubs/about-publication-523

Buying a new home doesn't matter.  The old rule about rolling the gain from a home into a new home to postpone the tax was eliminated in 1997.  Now, if you qualify for the exclusion (as you appear to), the first $250,000 of gain is excluded, and the rest is taxable.  Because of your other income, some of the gain will be taxed at zero percent and the rest at 15%.

You need to know your gain, not your proceeds.

[AmeliesUncle]

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@redhottiescottie wrote:

I am a widow so I'd fall under the single status.  

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As VolvoGirl and Opus said, you need to know your "Basis" in the property.  While that is often the 'cost', your case it MIGHT be a bit different.  Did your spouse also own the home?  If so, what was the Fair Market Value of the home when your spouse died?  What state is the home?

[redhottiescottie]

My late husband purchased the home for $180,775.00. I'm not sure if that's what you're asking about.  I know practically nothing about things like this.  

[redhottiescottie]

Yes, my late spouse owned the home from 2014 to 2017 when he passed.  The home is in Florida. I don't know what the fair market value was at the time of his death.  I know he bought the home for $180,775.00. 

[VolvoGirl]

You need to see a CPA or tax accountant or estate attorney.   You need to find out the value on the date of death and what cost you inherited it.  You got a step up in value.  

[Opus 17]

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@redhottiescottie wrote:

My late husband purchased the home for $180,775.00. I'm not sure if that's what you're asking about.  I know practically nothing about things like this.  

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"I practically know nothing about things like this."

That's why there are experts.  A $500 consultation with a tax expert to help prepare your return, plus a $250 appraisal from a real estate professional, could save you $7500 in capital gains tax.

Based on the facts you know now, you will owe about $7500 in capital gains tax.  If you see an expert, and document the fair market value of the home on the date your spouse died (which a real estate appraiser can do using historical records) you could possibly reduce your tax to zero.

We have already explained the procedure several times.  If you haven't been able to understand what we've talked about so far, you have no hope of properly preparing a tax return on your own for this situation.  The money you spend on experts will be well worth it in tax savings.