Have You Owned Your Home for a Long Time? Here Are Some Ideas on Limiting Your Capital Gains Liability

Real_Estate_Today_byline   If you bought your primary residence back in the 1960s or 1970s, there’s a good chance that you’ll be pushing the limits of the capital gains tax exemption when it comes time to sell.

Fortunately, the recently enacted tax reform bill retains the $250,000 exemption from capital gains tax for a single person, and the $500,000 exemption for a married couple. If you bought your house for, say, $30,000, in the 1960s, it’s quite possible that it’s worth 10 or 20 times that amount now, resulting in the possibility of capital gains taxation.

I am not a CPA or tax advisor, but I can share some of what I’ve learned about strategies to avoid capital gains taxation on the sale of your home.

If you’re a couple thinking that you might want to sell before you both die, consider selling before one of you dies, or your $500,000 exemption will be cut in half. Remember that you have to have lived in your home for at least two of the five years prior to sale date, in order to have that exemption, so if you recently moved into, for example, an assisted living facility, you’ll need to sell it within three years of your move or you’ll lose the exemption.

Do not add your heirs to the title of your home as a “joint tenant” with rights of survivorship.  Why not?  Because, although it may simplify the passage of ownership to them upon your death, it simultaneously adds to their tax liability.  This occurs because they inherit your original purchase price as their cost basis, whereas if they inherit the property through your will, the basis for them is stepped up to the fair market value of the home at the time of the inheritance. Again, this requires that you not move out of the house more than 3 years prior to passing.

If one of a married couple moves out, the $500,000 exemption is preserved by the other spouse as long as the absent spouse is still alive, providing the couple sells the house within 3 years of the last spouse moving out.

Again, I am not a tax advisor, and am only recounting what I have been told by tax and estate-planning professionals. Consult your own tax  professional before acting on anything I have said in this article. If you don’t have a tax advisor, I can help you find one.

If you’d like to know what your home is currently worth, or what it might sell for, call Golden Real Estate at 303-302-3636 for a free market analysis.  Our agents are also available to meet with you in your home.

If you’re considering moving into a senior community — whether independent living or assisted living — we know experts on such facilities, which are usually rentals.

Downsizing could take the form of moving into a low-maintenance or zero-maintenance condo, townhome or patio home, in which case we, as Realtors, can serve you ourselves. If you are worried about selling your current home and then not being able to find a replacement because of the low number of active listings, we have strategies for avoiding that situation. Call us for a free consultation.

Author: Golden Real Estate, Inc.

Golden Real Estate is a prominent member of the Denver/Jefferson County real estate scene. Based in Golden, we service both Denver and Jeffco, representing both buyers and sellers. We're well known for Broker Jim Smith's weekly "Real Estate Today" column published in the Denver and Jeffco editions of the Denver Post's YourHub section each Thursday. The column also appears in several weekly newspapers and is archived at www.JimSmithColumns.com. We have nine agents, all of whom are Realtors and EcoBrokers. Our office is Net Zero Energy since December 2017, and several of us drive electrics cars. Known for our sustainable practices, we accept polystyrene (aka "Styrofoam") for recycling, keeping 200 cubic yards per year out of area landfills.

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