Tax Exemption for Home Sellers in the US

by | 2023-08-07 | Accounting & Tax

When selling a home in the US, tax exemption would be applied. This is very important to save your capital gain taxes from your profit on your home sale. Let’s see the details.

Tax deduction amount when selling a home in the U.S.

First, the basic tax exemptions are the following.

  • In a joint tax filing, married couples can exclude up to $500,000 on the profit of selling their primary residence homes from income tax.
  • For single filers, the tax exemption amount is up to $250,000.
  • This exemption is only applicable once every two years.
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What is home sale’s net profit?

The net profit is the amount obtained by subtracting the cost basis from the home selling price. The cost basis is the original acquisition/purchase price plus improvement costs.

What are the conditions to receive a tax deduction?

To receive this tax deduction, the taxpayer must have lived in the house as their primary residence for at least two years within the past five years. This is called “Principal Residence” defined by Internal Revenue Service (IRS).

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Conditions for the deduction on the profit from selling a residence in the event of a spouse’s death.

If your spouse has passed away and you are the surviving spouse, and if the house remains your primary residence for two years after the death of your spouse, you can deduct $500,000 from the profit on the sale of the residence.

What is Step-UpBasis?

Additionally, you can choose a method called “Step-Up Basis,” where the market value at the time of the spouse’s death is considered the cost. This means that the cost will be raised to the market value at the time of sale.

For questions about tax-saving measures during the sale of a residence or inquiries about tax filings, please contact Muso & Co.

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