What Is Capital Gains Tax on Real Estate?

The capital gains tax on real estate is a tax that you pay on the profits you get from selling land, including private residences. However, if you are selling your primary residence, you may be able to claim a tax break.

Capital Gains

Capital gains that result from holding the property for at least one year are subject to lower tax rates than ordinary income.

Reporting

You must file schedule D along with your tax return to determine the amount of your capital gains to report your gains on your taxes.

Home Sales Exclusions

When you sell your primary residence, you are allowed to exclude the first $250,000 ($500,000 if you are married and file a joint return) of gains from the sales of the home.

What Homes Count?

Only a home that you have used for the past two years as your primary residence can qualify for the exclusion.

Misconceptions

The Internal Revenue Service does not limit the number of times you can use the primary residence exclusion over your lifetime. In addition, you can use the proceeds from the sale for any purpose, not just the purchase of a new home, and still qualify.

References

• IRS: 10 Facts About Capital Gains and Losses
• The Motley Fool: Making Home Sale Capital Gains Disappear
• Bankrate: Capital gains home-sale tax break a boon for owners; Kay Bell