Real estate has proven again and again to be an excellent investment, encouraged by the fact that capital gains on its sale can often be avoided completely. While traditional investment vehicles like stocks impose a 15% tax on long-term gains, you can exempt $250,000 (or for joint filers $500,000) of your home sale profit from taxation.There are only two simple qualifications: you must have owned the home for at least two years, and it must have been your principal residence for at least two of the five years prior to its sale. Those two years don’t even have to be consecutive!
If you own two residential properties, then you have to do some figuring to determine which would qualify for the exemption. There are even some circumstances where you don’t have to meet the qualifications, such as hardships like change in employment, health problems, or military service.
What’s really attractive about this tax break is that you can take it over and over again, as long as you meet the two basic eligibility requirements. In theory, you could sell your principal residence every two years and walk away tax-free each time!
The capital gains exemption could provide motivation for selling your home before you reach the maximum allowable deduction, but be sure to seek the advice of your financial advisor before making your decision.
Bennington VT, Selling