Real Estate Capital Gains Tax - Ways Of Keeping Your Money Yours

Improve - Don't Pay Taxes!

July 30, 2004
Bogdan Voicu

The Real Estate Capital Gains Tax is subject to a lot of elements that may help you save some money. And, when talking about real estate properties, that is usually a serious amount of money.

By declaring a property as a primary residence for two years in the last five, a married couple may have a $500,000 real estate capital gain tax exclusion when they should sell their property. For a single person, the exclusion would be $250,000.

A special category is getting divorced. The property is probably own by both partners and it is usually sold in order to be split. This can lead to losing a lot of money, both in the selling price and in the taxes to be paid.

A common way to prevent this is by "buying out". One spouse "buys out" the other. The spouse that "sells out" will receive the money tax-free as the capital gains taxes aren't owed when a property is exchanged between spouses.

What happens when the exclusion is lesser than the actual capital gains tax owed? (bigger than $250,000, for a single person). There are ways to at least decrease the amount you have to pay to the federal government. You can make improvements that would materially add to the value of your house (building a new floor), considerably prolong its useful life (changing the construction material some walls are build of) or adapt it to new uses. A good idea is to keep the records of these improvements (receipts, canceled checks and more) for at least three more years after the selling of the house. You don't want the IRS to challenge that year's return and find you without any proof of those improvements, don't you?