Question

Home sale - long-term capital gains of 0$ if income falls under $94,050?

Forum|Forum|2 years ago
February 5, 2024
1 reply
0 views

Seeking clarity on capital gains as applied to a home sale. The home has been lived in for decades without interruption (far more than 2 in 5 years) as a principal residence. No other homes owned. My question applies to both Federal and state of California tax impact.

Federal: I understand that if a married couple filing jointly has reportable income below $94,050 (in 2024) then Federal tax on the next capital gain is zero. Is this true? By reportable I mean there may be other income drawn in year of sale not taxable, eg withdrawn from a Roth IRA account. And this of course supercedes the $500,000 capital gains exclusion.

California: the state recognizes the $500,000 capital gains exclusion for married filing jointly, but is the remaining capital gain taxed as ordinary income? If so, are there means to either ammortize the taxable gains over a period of years or otherwise minimize tax owed?

M

MonikaK1

California conforms to Federal law with regard to the taxability of gain on the sale of a personal residence. Please see this Franchise Tax Board webpage for more information.

Your gain is usually the difference between what you paid for your home, including capital improvements, and the sale amount. Use Selling Your Home (IRS Publication 523) to:

Determine if you have a gain or loss on the sale of your home
Figure how much of any gain is taxable
Report the transaction correctly on your tax return

For homes that meet the criteria, you can exclude up to $500,000 of gain for married taxpayers filing jointly. Any excess gain is taxed as a capital gain.

For the Federal return, for taxable years beginning in 2023, the tax rate on most net capital gain is no higher than 15% for most individuals. See this IRS webpage for more information.

A capital gains rate of 0% applies if your taxable income is less than or equal to:

$44,625 for single and married filing separately;
$89,250 for married filing jointly and qualifying surviving spouse; and
$59,750 for head of household.

A capital gains rate of 15% applies if your taxable income is:

more than $44,625 but less than or equal to $492,300 for single;
more than $44,625 but less than or equal to $276,900 for married filing separately;
more than $89,250 but less than or equal to $553,850 for married filing jointly and qualifying surviving spouse; and
more than $59,750 but less than or equal to $523,050 for head of household.

California also allows you to exclude up to $500,000 of gain but does not have a lower rate for capital gains. All capital gains are taxed as ordinary income.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"