https://www.youtube.com/watch?v=onsqgJ4pHeQ&t=170s
Music] Good afternoon, this is Scotty with the Gifford Group, and I just wanted to run you through our calculator for capital gains. We've been receiving a lot of questions about capital gains, especially with the recent increase in home prices. So, if you're wondering what your capital gains might be when you sell your home, you can use our Capital Gains Calculator on [the] Gifford Group.net.
I've also included tax rates for the 2022 tax year down here. Most people are going to fall into the 15% long-term capital gains range. This is different from your regular tax bracket, as anything you've held as an investment for longer than 12 months falls into the long-term capital gains category. This applies not only to stocks but also to real estate, which is what we're discussing here.
Now, let's talk about the real estate exclusion. If you're single, you get a $250,000 exclusion, and if you're married, you get a $500,000 exclusion for your long-term capital gains on real estate. To qualify for this exclusion, you need to have owned the home for at least two of the last five years, and these years don't have to be continuous. You could have owned the home for one year, then moved out for three years, and moved back in for one year. As long as it's been your primary residence during two to five of those years and you're selling it as your primary residence now, the exclusion applies.
Let's go through a scenario. Suppose someone bought a home for $250,000, which is their original basis. Now, you can subtract any improvements made to the home along the way. You'll find some examples of improvements that count if you scroll down. These can include things like adding new ductwork, plumbing replacement, adding a garage, upgrading or replacing the AC system, or putting on a new roof. These are considered improvements to the home, but appliances and similar items don't count.
Let's say they spent $25,000 on upgrades to the home since they bought it. Now, the market's hot, and the average price in their area is $425,000. We also get to exclude any costs associated with selling the home. Typically, this includes around 6% for realtor fees and 1-2% for closing costs, which include title insurance and related fees. I've set it up for about 7.5%, which you can adjust if needed. So, the total cost associated with selling, based on the sales price, would be about $31,000.
If you're single, you get the $250,000 exclusion if you've owned the home for at least two of the last five years. If you've only owned it for one year, your long-term capital gains would be based on $118. This is calculated as the cost associated with the sales price minus the cost of selling, minus any improvements, minus the original basis. In this case, the long-term capital gains would be almost $17,719. However, if you've lived in the home for three to five years, you get the $250,000 exclusion, making your capital gains zero.
Now, let's consider a scenario where the home is more expensive. Say they bought it for $450,000, made several improvements like adding a pool, fixing the AC, and the roof, and now they're selling for $1.2 million. If we factor in a 7% selling cost, which would be $84,000, and they're single with the exclusion, their capital gains would be $586,000. After applying the $250,000 exclusion, they'd have $336,000 left. Based on a 15% tax bracket, they'd owe approximately $50,000 in capital gains tax.
If they were married, they'd get a $500,000 exclusion, resulting in only $86,000 in long-term capital gains. At a 15% tax rate, they'd owe about $13,000 in capital gains tax.
Please note that this is just an estimate, and it's important to consult with a CPA to ensure all numbers are accurate and that you've included all costs and improvements correctly. Nevertheless, this calculator should provide a good estimate of your potential capital gains, helping you understand whether you need to be concerned about them or not. It's a quick way to get an idea of your situation.
If you're in the Houston market and considering selling, feel free to reach out to us at the Gifford Group.net. You can also contact me at [email protected] or [email protected]. Thanks for watching, and we hope you have a great day! [Music] You. [Music] Good afternoon, this is Scotty with the Gifford Group, and I just wanted to run you through our calculator for capital gains. We've been receiving a lot of questions about capital gains, especially with the recent increase in home prices. So, if you're wondering what your capital gains might be when you sell your home, you can use our Capital Gains Calculator on [the] Gifford Group.net.
I've also included tax rates for the 2022 tax year down here. Most people are going to fall into the 15% long-term capital gains range. This is different from your regular tax bracket, as anything you've held as an investment for longer than 12 months falls into the long-term capital gains category. This applies not only to stocks but also to real estate, which is what we're discussing here.
Now, let's talk about the real estate exclusion. If you're single, you get a $250,000 exclusion, and if you're married, you get a $500,000 exclusion for your long-term capital gains on real estate. To qualify for this exclusion, you need to have owned the home for at least two of the last five years, and these years don't have to be continuous. You could have owned the home for one year, then moved out for three years, and moved back in for one year. As long as it's been your primary residence during two to five of those years and you're selling it as your primary residence now, the exclusion applies.
Let's go through a scenario. Suppose someone bought a home for $250,000, which is their original basis. Now, you can subtract any improvements made to the home along the way. You'll find some examples of improvements that count if you scroll down. These can include things like adding new ductwork, plumbing replacement, adding a garage, upgrading or replacing the AC system, or putting on a new roof. These are considered improvements to the home, but appliances and similar items don't count.
Let's say they spent $25,000 on upgrades to the home since they bought it. Now, the market's hot, and the average price in their area is $425,000. We also get to exclude any costs associated with selling the home. Typically, this includes around 6% for realtor fees and 1-2% for closing costs, which include title insurance and related fees. I've set it up for about 7.5%, which you can adjust if needed. So, the total cost associated with selling, based on the sales price, would be about $31,000.
If you're single, you get the $250,000 exclusion if you've owned the home for at least two of the last five years. If you've only owned it for one year, your long-term capital gains would be based on $118. This is calculated as the cost associated with the sales price minus the cost of selling, minus any improvements, minus the original basis. In this case, the long-term capital gains would be almost $17,719. However, if you've lived in the home for three to five years, you get the $250,000 exclusion, making your capital gains zero.
Now, let's consider a scenario where the home is more expensive. Say they bought it for $450,000, made several improvements like adding a pool, fixing the AC, and the roof, and now they're selling for $1.2 million. If we factor in a 7% selling cost, which would be $84,000, and they're single with the exclusion, their capital gains would be $586,000. After applying the $250,000 exclusion, they'd have $336,000 left. Based on a 15% tax bracket, they'd owe approximately $50,000 in capital gains tax.
If they were married, they'd get a $500,000 exclusion, resulting in only $86,000 in long-term capital gains. At a 15% tax rate, they'd owe about $13,000 in capital gains tax.
Please note that this is just an estimate, and it's important to consult with a CPA to ensure all numbers are accurate and that you've included all costs and improvements correctly. Nevertheless, this calculator should provide a good estimate of your potential capital gains, helping you understand whether you need to be concerned about them or not. It's a quick way to get an idea of your situation.
If you're in the Houston market and considering selling, feel free to reach out to us at the Gifford Group.net. You can also contact me at [email protected] or [email protected]. Thanks for watching, and we hope you have a great day! [Music] You.
https://thegiffordgroup.net/capital-gains-calculator-1
0%, 15% and 20%, as well as a 3.8% (NIIT) Medicare surcharge imposed on the wealthiest Americans. (see below)
For the 2023 tax season, the 0% rate on long-term capital gains – any asset held for longer than a year – can be applied to taxable income of $41,675 or less for single filers and $83,350 or less for married couples filing jointly.
That means the 0% rate is higher than it appears: It is based on taxable income, which is calculated by subtracting the standard deduction from your adjusted gross income or itemizing deductions.
The standard deduction for single filers in 2022 will be $12,950, and for joint filers, it will be $25,900.
That means the rate applies to a minimum of $57,575 for individuals and $109,250 for married couples.
Despite the fact that long-term capital gains at lower income levels may be tax-free, they are still income for tax purposes, not only to determine the tax bracket to be applied to but also to determine state income taxes (which may not be 0%! ), Adjusted Gross Income (AGI) and any tax-related adjustments or thresholds based on AGI, as well.
According to the Internal Revenue Code, ordinary income is applied first to fill the bottom tax brackets, then long-term capital gains are added.
Those tax deductions are applied to ordinary income first and then to long-term capital gains directly. After ordinary income has been reduced to zero, those deductions are applied to long-term capital gains directly.
This is actually the best sequence, since ordinary income (which would otherwise be taxed at the highest rate) gets the lowest brackets; however, even though long-term capital gains get pushed into the higher brackets because long-term capital gains are already eligible for preferential tax rates, they still result in the greatest tax savings.
0% rate only applies as long as the income actually does fall within those lower brackets – which means “too much” in capital gains will eventually cross out of the 0% rate and into the higher tax brackets.
Net Investment Income: NIIT is levied on the "net investment income" of individuals whose modified adjusted gross income (MAGI) exceeds certain thresholds.
$200,000 for single filers and heads of household
$250,000 for married couples filing jointly
$125,000 for married couples filing separately,
Capital Gains: If you realize a capital gain from the sale of a rental property and your MAGI exceeds the applicable threshold, the capital gain will generally be considered part of your net investment income. Consequently, it may be subject to NIIT.
Texas versus other U.S. states
While Texas does not tax capital gains on real estate, most other states do, resulting in much higher taxes when selling homes. You must pay federal income tax regardless of whether your state has a state income tax.
Can you avoid Texas capital gains if you reinvest in real estate?
This is known as a 1031 exchange. It does not eliminate taxes but defers them to whenever you sell the property that the capital gain is reinvested into. (not really for personal residence)
What states do not pay capital gains tax?
States That Don't Tax Capital Gains
California allows taxpayers to report gains and losses from the sale of capital assets. Unlike federal income taxes, which may involve lower rates on capital gains, the state of California taxes capital gains as ordinary income. California has [no set capital gains tax](https://taxsharkinc.com/california-capital-gains-on-real-estate/#:~:text=California has no specific capital,%2C 11.3%25 and 12.3%25.) rate but imposes the standard California income tax rate on any capital gain. Income tax brackets include 1%, 2%, 4%, 9.3%, 10.3%, 11.3%, and 12.3%.
Pick your state tax rate.
CAPITAL GAINS TAX ON REAL ESTATE, IMPLICATIONS OF DIVORCE
CAPITAL GAINS TAX ON A HOUSE SOLD DURING A DIVORCE
During a divorce, when selling the marital home, you need to understand capital gains taxes.
he process of buying a new home is an exciting one for married couples. Unfortunately, when it comes time to sell a house, there may not be such happy circumstances. When a sale of the marital home involves potential capital gains taxes, understanding the available exclusion tests is crucial. In general, both the homeownership and the use tests must be met in order to qualify for the Section 121 exclusion.
Capital gains are taxed by the federal government and by states.
The current Capital Gains Exclusion on the sale of the primary residence currently allows for a $250,000 individual exclusion.
Married couples are allowed a $500,000 marital exclusion.
Read below for more details on Ownership & Use Rules Ownership Rule and Tax Rates.
See IRS exclusion info
https://www.irs.gov/taxtopics/tc701
https://www.irs.gov/taxtopics/tc409
Reduce Capital Gains Tax Using Expenses of Sale
Types of Selling Expenses That Can Be Deducted from Your Home Sale Profit