As home values have surged in the past decade, many U.S. sellers are encountering capital gains tax liabilities due to profits exceeding IRS exclusion limits. Homeowners can exclude up to $250,000 (or $500,000 for married couples) on profits from their primary residence sale. To qualify for the full exclusion, homeowners must meet the ownership and use tests, and the two-year lookback rule. Diligent record-keeping is imperative to accurately calculate capital gains and leverage applicable deductions to minimize tax liabilities.
"Keeping your settlement statement is very important to determine your basis versus the actual sales price," explains Katrina Martin, an enrolled agent with Wow Tax Advisory and Service.
If you sell your primary home and make less than the excluded amount in profit, you won't owe any federal capital gains tax on that portion of the gain.
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