Capital Gains Tax - Who pays it, Buyer or Seller?

06.20.2012  |  category: For_Sellers  |  posted by: Joy Mengeringhausen


In most caseswhen selling your personal home, no one pays it but this tax would fall to the Seller. Whether you owe it or not depends on the circumstances, read on. Truth be told, this is more of a tax break than a bank breaker and one of the best tax breaks available in the US today!

When you sell your primary residence, you can make up to $250,000 in profit, twice that amount if married ($500,000), without paying the capital gains tax! What a country!

Is there a catch?
Of course there is. In order to be exempt from the capital gains tax you must have lived in the home as your primary residence for two out of the last five years.

Does a rental property qualify?
No. However, you can always turn a rental property into your primary residence and move into the property for a minimum of two years prior to selling.

Do I have to roll the earnings into a new home?
This is the best part, NO! You can sing wee, wee, wee all the way to the bank.

Is this a one time thing?
No. As long as you live in your home for the two year requirement, you can sell it and repeat as often as desired. Do your math though, each sale must be at least two years apart and the home must have been your personal residence for the two year use period.

Does the two year use period have to be consecutive?
No. As long as it was your primary residence for a total of two years during the last five years, you still qualify. It could have been your primary home for the first year, rented for three years then lived in it again for the last year and the IRS will allow it.

Do I have to occupy the home at the time of sale?
No. Say you transferred to a new job in another city or country but your home didn’t sell before your move date. You still qualify for the allowance as long as it sells within three years of your move.

I got married six months ago, does my spouse qualify for the married allowance?
If your spouse lived in the home with you for the year and a half prior to marriage (totaling two years), yes your spouse qualifies. However, not if your spouse moved in on your wedding day. For your spouse to qualify they must have lived in the home for the minimum two year use requirement. It does count if it was their full time personal residence prior to marriage.

I’m in the military and I get shipped around a lot. Is there a tax break for me?
Yes. There is a special exception for members of US armed forces. As long as you are moving to fulfill service requirements, you are exempt of the two year use requirement for up to ten years.

I spent a lot in home improvements, is that considered at all?
Yes. Save your receipts. Your home improvements may be deducted from what you may owe above the $250,000 or $500,000 (if married) allowance.

I had to move due to unforeseen circumstances, can I qualify?
Yes. If your move was due to special circumstances like a job change or illness etc. you may qualify for a fractional allowance based on how long you occupied the home prior to your move. For example, if you are single and only lived in the home for one year, your allowance would be 50% totaling $125,000 or if married, $250,000.

Is it paid at closing?
No. Store your acorns, the tax will be paid at the end of year when filing your annual income taxes. If your profit exceeds the $250,00 or $500,000 (if married) allowance you will have to pay the tax on any portion above that amount. Check with your accountant or tax preparer, calculate the tax amount and set it aside. If you don’t trust yourself to not spend it, you can send it straight in but it is not a requirement.


The information contained herein is believed to be accurate. However, every persons individual tax situation may be different. The reader is advised to seek the advice of an accountant or tax attorney before acting on the information contained herein. 

Thinking of selling a home, condo or other Real Estate in Fort Myers Beach, Fort Myers, Cape Coral, North Fort Myers, Bonita Springs, Estero, Naples, Matlacha, Saint James City, Bokeelia, Pine Island, Sanibel, Captiva, and Lehigh Acres? Get in touch, I would love to interview for the chance to represent your best interest.