[USER]

My husband and I are going to sell our house a major metro area and move in a few years, still have 1 kid in HS.
The house has doubled in value since it was purchased 15 years ago.

I’ve been told there will be a capital gains tax as a result.
We still have a hefty mortgage that will not be paid off when we downsize.

Wondering about % of capital gains and the fact that we still have a large mortgage might offset that.

[Brian]

If you sell your home for $1.4 million, you can subtract from that
– your purchase price

– any capital improvements you have made (not repairs or maintenance, but things like remodeling a kitchen, upgrading finishes, etc).
– transaction costs like real estate commissions.

From this net gain, you can then exclude $500k as a married couple assuming this has been your primary residence 2 of the last 5 years.

The remaining amount is what you will be taxed on at long term capital gains tax rates.

Your mortgage is irrelevant.

[Kevin]

Your gain needs to be >$500k (married) in order to owe capital gains (federally) and it should be 15% (long term)

Amount of your mortgage is moot as that has little to nothing to do with the value and the sale.

Can you provide numbers? What did you purchase it for? Expected sale value?

[Manu]

If you are filing jointly, you will not incur long-term capital gains tax on gains up to $500,000.

However, any capital gains exceeding $500,000 will be subject to long-term capital gains tax.

The applicable tax rate will be 0% or 15% or 20%, depending on your total income for the year.

[Amanda]

Check this site for prior similar questions. Check into the upgrades you have done to the house and if that counts too.

[Dawn]

Even if you sell it for 650 K more than what you bought it for, that is not your true capital gain.

You will also subtract any improvements you’ve done over the years, and selling expenses.

If you are married, you will get to exclude $500,000 of the gain on top of any improvements you’ve made over the years

[John]

If this is your primary residence and you are married, you get the first $500,000 of gains TAX-FREE!

This is the greatest tax break of modern man, other than being a billionaire and paying near zero in taxes. You should jump at the chance.

Let’s say you bought the house for $500K and now it’s $1M, your gains are $500K and tax is ZERO.

But that’s not all… you have cost of sale & cost of purchase. Capital improves like remodeling.

Let’s say you have $80K in write-offs, so you subtract that before taking the $500K write-off.

Do not hesitate; it honestly doesn’t get any better than this.

[Kelly]

The first $500k off your profits are tax exempt
Anything beyond that profit will be taxed

[Colette]

You say you will still have a “hefty mortgage that won’t be paid off when you downsize”. Are you saying that your current mortgage is more than the estimated $1.4m value???

[Justin]

Your house doubled and 15 years paying off the loan and you won’t have the note paid off when you sell?

[Scott]

There may be state income tax implications though there are 51 different answers there.

Also note that if you sell when you or your spouse is 63 or older the net gain (after the $500k exclusion) would be in IRMAA AGI.

That could impact your Medicare premiums 2 years after the sale.

[Author]

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