Spouse & I are retired w/ income less than $83K. We're selling primary home & have long-term cap gain of $1M. Is tax on $500K or does new cap gain rule reduce tax to $0?

[chi-love]

In other words, is the $1M we made on house considered income or is our social security our only income, thus avoiding capital gains tax of 15% on excess of $500K we're allowed to exclude?

[Mike9241]

you mention only the gain and social security so I will assume no other income. other income like interest or dividends would substantially alter these figures. 

the $500K taxable portion of the home sale will subject 85% of your social security benefits to taxation.

in addition, most of the nonexcludable gain will also be subject to income taxes 

assuming that your only taxable income is the $500K capital gain (other income - taxable social security is netted out by your standard or itemized deductions) about $85K is not taxed with the remainder taxed at 15%.

in addition, that gain and your high modified adjusted gross income would also subject MAGI (the capital gain + the taxable portion of social security) reduced by $250K to an additional tax of about 4%

so the total federal taxes would be over $70K 

if you had another $25K in ordinary taxable income that would push more of the gain into the 15% bracket and even some into the 20% bracket and more income subject to the NIIT tax and some of that other ordinary income would also get tax at a higher tax bracket. estimate is additional taxes of around $7K   

you can do your own calculations using the schedule D tax worksheet. see schedule d instructions page D-16

https://www.irs.gov/pub/irs-pdf/i1040sd.pdf 

[NCperson]

@chi-love simply, you will pay capital gains.

Let's say it's a $1mm gain and your combined SS is $50,000

The tax will be around $65,000 for capital gains and $11,000 for NIIT tax , so $76,000 in total,  You can see how I calculated that at this website

https://www.dinkytown.net/java/1040-tax-calculator.html

you should also be aware that for one year, your Medicare premiums will be subject to IRMAA.  if you sell the home in 2023, then your Medicare premiums in 2025 will be subject to IRMAA. The premiums for EACH of you will be 3.2 times the normal premium.  So using the 2024 premium of 174.7 means that the 2025 premium will be in the range of $560 per month per person.  So figure on top of the $75,000 there is $9000 of IRMAA charges.  AGAIN, this is ONE YEAR only.

Also, don't forget that going forward, you will be investing the $1,000,000.  Even if it is only in a bank savings account, it could generate $40,000 of interest, so if you only income is social security today, it won't be tomorrow, which will subject your SS income to tax.