Capital gains on home sale

[greatscott73]

My wife and I sold a house this year that we had only lived in for 19 months. (We used the 250/500 exemption in 2021 when we sold our previous house). We made approximately 72k profit on the house sold this year. Our normal AGI from pension and social security income is usually about 50k. Does this low AGI for us (married filing jointly) allow us to avoid capital gains tax on the sale? Thank you.

[Gabriella_EA]

Hello greatscott73!

Thanks for joining us for the event today, and for this great question!

You would have some capital gains tax on the sale of your home in 2023, based on the information you provided. The AGI you provided is about $122,000. After your standard deduction, your taxable income would be approximately $94,300 for 2023. The maximum taxable income you can have for 2023 while remaining in the 0% long-term capital gains tax rate is $89,250. You're just a bit over that threshold, using the figures you provided.

[greatscott73]

I understand things like real estate commissions and improvements made before sale may reduce that 72,000 profit. Would that help me get under that 89k limit?

[Gabriella_EA · Accepted solution]

You're absolutely right - there are things, including selling costs and improvements made before the sale, that can reduce your actual gain on the sale, which may get you under the limit for 2023.

TurboTax will ask you the questions and guide you through the process of including qualifying costs, but as you plan, you can also check out IRS resources such as Publication 523 (see the section on Figuring Gain or Loss).