1. Primary Residence (The Capital Gains Exclusion)

If the property is your primary home, you can exclude up to $250,000 (or $500,000 if married filing jointly) of the profit from your taxes.

• The Rule: You must have owned the home and lived in it as your primary residence for at least two of the five years immediately preceding the sale.
• Details: You can use this exclusion every time you sell a primary home, provided you haven’t claimed it on another home in the previous two years.

2. Investment or Rental Property (The 1031 Exchange)

If you are selling an investment or rental property, you cannot use the primary residence exclusion, but you can defer your capital gains taxes.

• The Rule: A 1031 Exchange allows you to postpone paying capital gains taxes if you reinvest the proceeds from the sale into a similar “like-kind” property.

3. Deducting Selling Costs & Improvements

Whether you are selling a primary home or an investment property, you can reduce your taxable profit by subtracting your direct costs.

• Selling Costs: You can deduct real estate commissions, title insurance, escrow fees, legal fees, and advertising costs. These are subtracted from your sale price, which lowers the overall profit you pay taxes on.
• Home Improvements: Add the cost of major renovations (e.g., a new roof, updated plumbing, or an addition) to your original purchase price. This raises your “cost basis,” thereby reducing the amount of profit that is subject to taxes.

Consult the our CPA for more detailed information on reporting your sale and calculating your exact tax obligations.