It is almost “the season” and many people are thinking of selling their home in Naples.  Most of them know that when they sell a house that something called “Capital Gains” comes into play and they can exclude up to $250,000 of the capital gain from tax – and couples filing jointly can exclude up to $500,000- also, unmarried people who jointly own a home, file separately and individually meet the requirements, may each claim the $250,000 exclusion?

To meet the requirements (there are some exception) you must have owned the home as your primary residence for a total of at least 2 of the past 5 years (does not have to be a contiguous period) before the sale.

You can claim this this capital gains tax exclusion every 2 years.

Many think that the difference between what they paid for the home and what they sold it for is the capital gain.  But, it is not quite that simple – here is where a good tax professional comes in handy, so be sure to consult one.  Your gain is the selling price of the house less the closing costs (deductible closing costs include pints or prepaid interest on your mortgage and your pro-rata property taxes, selling costs (broker’s commission, title insurance, legal fees, advertising costs, administrative costs, escrow fees, inspection fees) acquisition expenses, any capital improvement costs (new roof, landscaping, additions, etc.), depreciation and casualty losses. 

There are many reasons to claim a partial exemption if you have not lived in the house for a total of 2 years out of the past 5 years.  Such reasons as for a change in employment or if your doctor recommended a move because of your health (does not include being sick and tired of living there), or if you sold because of a divorce or a death in the family – then you may claim a partial exemption based on the percentage of the 2 years that you lived there.

An exception that may interest many people is if you moved into a nursing home.  The residency requirement is then changed to one (1) out of (5) years- time spent in the nursing home counts as ownership time and usage of the home time.

If you expect very large capital gains more than can be excluded from tax -- you may consider ways to divide ownership of the house.

If you and your spouse own the residence together with an adult relative- If the relative meets the ownership and use requirements as to one-third of the property- then that relative may sell his share for a $250,000 gain excluding the tax. The couple may simultaneously sell their share for $500,000 without tax, thus sheltering the entire $750,000 gain.

All Tax Matters Should Be Advised by and Reviewed by a Qualified Tax Professional.  This blog is meant to be informational only and may not be entirely correct.

For more information, see IRS Publication 551, Basis of Assets, and look for the section on real property.  Publication 523Selling Your Home, provides rules and worksheetsTopic 409 covers general capital gain and loss information