While often overlooked, understanding the tax implications of selling a home is important. This is probably because of the generous federal exceptions that exempt homeowners from paying capital taxes for their primary residences. Nonetheless, you should understand capital gains tax Nebraska if you are selling your investment property or your home value increased significantly during the period of ownership.
However, this doesn’t mean you can’t completely reduce or avoid paying capital tax. You can avoid or reduce taxes on your primary residence, rental property, or real estate properties with the following tips:
The best strategy to avoid paying capital gains tax after selling your property is to own and live in it for at least two years. Federal tax laws exempt up to $500,000 for married couples and $250,000 for single persons in gains on primary residences.
However, to qualify for the capital tax exclusion, you should have lived in the property for two or more years as your private residence before listing it for sale. As such, you can take advantage of this provision by living in the house for two years and converting it into a rental or vacation home before the five-year provisional period lapses.
You can also qualify for capital tax waivers using various exceptions. The IRS laws allow homeowners to sell their homes tax-free if they are forced to due to work, health, or unforeseeable issues. You can qualify for exceptions and avoid paying taxes on property sales in the following situations:
- If you are relocating because of work: You qualify for an exemption if you or your spouse is transferred or took a new job more than 50 miles from your current home.
- Health-related issues: You are also exempted if you or your loved one must relocate to diagnose or treat an illness or injury. You can also sell your home tax-free if you are doing so to provide medical care to family members.
- Unexpected personal events: Divorce, legal separation, or death are also exemptible.
- Unemployment or change in income: Being unemployed means you can’t afford the basic living expenses. This is a valid reason to sell your home tax-free.
Taxation laws and regulations are designed to encourage homeowners to replace properties they sell by buying another one. The 1031 real estate exchange provision allows investors to buy two or more properties using proceeds from the sale without paying capital gains tax.
However, you should follow and complete various processes within a given time frame to benefit from this option. For instance, you should sell your property through an intermediary and identify a replacement property within 45 days. You should also close the purchase within 180 days.
While you can’t avoid paying taxes using this option, it helps spread capital gains tax over several years, reducing its impact. Installment sale means selling your home over time. This spreads out tax gains over multiple years.
Selling your property with profits doesn’t mean you should pay huge tax bills. You can reduce or completely avoid paying capital gains tax using these strategies. However, regulations vary, and you should research before using either option.