Hello. My wife and I are planning to sell our home. We estimate about $1 million in gains from the purchase price. We plan to file jointly as married. We have bought and been living in the home for ten years, and it has been our primary residence. Together, we make less than $70,000. Do we need to pay taxes on the house after the sale? We are in California.
Also, in case we need to pay taxes, can we deduct any permanent improvements? Specifically, I built a patio for the house, but during that time, my wife was the sole owner, and we were not married, and I acted as a contractor. Thank you.
Hello my friend and thank you for your question.
If you lived in your home for ten years and is your primary home, when you sell it then you will be able to exclude up to $500,000 in gain if you file Married Filing jointly.
If you sold it for $1million in gains you will be paying capital gains on the difference, assuming that you did not used part of your home as a busines or home office expense. The capital gains tax rate for Maffied Filing jointly will be as follows in 2023:
0% if taxable income is up to $89,250
15% if your taxable income is from $89,251 to $553,850
20% if your taxable income is over $553,850
You can get more information on capital gains tax rate at https://turbotax.intuit.com/tax-tips/investments-and-taxes/guide-to-short-term-vs-long-term-capital-gains-taxes-brokerage-accounts-etc/L7KCu9etn
You can see more details on Sale of your home on Publication 523 at https://www.irs.gov/pub/irs-pdf/p523.pdf
I hope this answered your question.
Thank you so much
Martha