Save Yourself $500,000 In Capital Gains Taxes

With our healthy real estate market, many sellers realize they will receive a decent amount of money when they sell their home.  If you are single, you can potentially exclude paying taxes on up to $250,000 of capital gains profit.  If you are married and file a joint return with your spouse, you can exclude paying taxes on up to $500,000 of capital gains.  Of course, there is always a catch.

You must have used the property as your principal residence for at least two years during the previous five years.  The 24 months can be continuous or be divided.  If you are married, at least one spouse must pass the ownership test and both spouses must pass the use test.  If you don’t entirely pass the use rule, you can receive a reduced benefit.

Keep this in mind as you decide what to do about a home when you move.  I have always leaned toward renting out my home when I moved away.  After five years went by, I lost this valuable tax shelter.  Consult with your attorney to discuss your options.  You may move back into a rental home or you may delay moving out of your current home to pass the use rule.  It could save you quite a bit of money.