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What Will My Capital Gains Tax Be When I Sell My Home?

  • September 10th, 2014
I am planning on selling my house and buying a smaller and cheaper one. I am married and have been in my home for 40 years. Its sale price will be close to $2.5 million. I paid $358,000 and I have made approximately $250,000 in improvements. My new purchase will be about $1 million. What capital gains taxes will I be paying on the sale of my primary residence. (I live in California.)

For a definite answer, you will need to consult your accountant or attorney. Also, since I practice in Massachusetts, I don’t know the California tax on capital gains. But here’s how the federal tax works: Your basis in the property is approximately $600,000, assuming you can document the improvements ($358,000 plus $250,000). Your capital gain is the difference between your sales price and your basis, or approximately $1.9 million ($2.5 million less $600,000). You and your wife together can exclude $500,000 of gain, bringing the taxable gain down to $1.4 million. In addition, if you have to pay a realtor to sell the property, his or her fee is deductible. Assuming that’s $100,000, this brings your taxable gain down to $1.3 million. Then, we have to determine your capital gains tax rate. If your taxable income is less than $432,000, it is 15 percent, resulting in a tax of $195,000. If it is greater than this threshold, the tax rate is 20 percent, resulting in a tax of $260,000. You will have to check with a California attorney or accountant to determine your state tax.

Local Elder Law Attorneys in Ashburn, VA

John Laster

Law Offices of John L. Laster
Falls Church, VA

Jeffrey Hammond

Hammond and Associates, LLC, Elder Law, Estate Planning, Wills, Trusts, Probate
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William Fralin

The Estate Planning & Elder Law Firm PC
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Last Modified: 09/10/2014

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