I have recently spoken with several people who were not at all familiar with the current laws regarding capital gains taxes when you sell real estate.
So, even though the current laws have been in place for a number of years, I think it is worthwhile to review them.
First, let me emphasize that I am not a tax professional. I'm just telling you how I believe the tax system works from the standpoint of a real estate broker. Before you make any decision regarding buying or selling real estate, I recommend you talk with your tax attorney or CPA.
When you sell a house or condo, if you have lived in your property for two consecutive years out of the past five, you may exclude $250,000 in profit from capital gains as a single person or $500,000 as a married couple.
So, if the property has been your personal residence, you may not owe any capital gains taxes at all.
Many people were familiar with the previous tax laws, where you had to roll your gains into another property of equal or greater value. That no longer applies. You don't even have to purchase another home.
There also used to be a one-time capital gains tax exclusion of up to $125,000 for sellers over the age of 55. This law is also gone but, with the new law, you don't need it.
If you lived in the property for less than two years, you may still be able to exclude a prorated amount of profit from capital gains taxes, depending upon the reason for your move. If you are transferred to a job more than 50 miles away; have to move for health reasons; or have unexpected circumstances such as multiple child births, divorce, or death in the family, check with your tax professional.
If you are selling a property that was not your personal residence, you face a decision. You can sell and pay capital gains taxes (currently the rate is 15%) or you can execute a 1031 tax deferred exchange to roll the profit into another investment property.
If you plan to sell an investment property in the Rancho Bernardo area, I can hook you up with a very good escrow officer who has extensive 1031 exchange experience and can make the transaction go much smoother.
I hope this answers any questions you may have regarding capital gains taxes. If not, please call me at 858-487-2308.