How to Minimize Tax Burden When Selling a Home


💵 How much will you pay in taxes when selling your home…
…and how can you minimize your tax burden?
It depends!
--Primary Residence--
😁 The basic rule for a primary residence is the first $500K of gain is tax free (if you’re married)
If you’re single that number drops to $250K
So, let’s say you’re married and you purchased your home for $1M
Over the years you spent another $500K on improvements and remodeling
That gives you a Tax Basis of $1.5M
If you sell the home for $3.1M, you’ll probably net $2.9M due to closing costs
Take the $2.9M and subtract the tax basis of $1.5M to calculate your gain of $1.4M
👍 BUT remember… the first $500K of gain is tax free
So you’re left with $900K of taxable capital gains on the sale
--Vacation Home--
For vacation homes, things are much more straight forward, because…
😒 …there simply are no tax breaks!
The $500K/$250K tax free gain only applies to your primary residence.
You might be wondering…
…can I defer that gain on my vacation home by rolling it into another property?
👎 I’m afraid, you can’t.
This only works for properties you own for investment purposes.
--Income Property--
A 10-31 exchange is a smart way to defer your taxable gains when selling your income property, assuming you follow the rules.
A special intermediary needs to be used and…
⏳ …be sure you can purchase your next investment property within 180 days.
--Inherited Property--
What if you’re selling a property that you’ve inherited?
In this case, the home’s original purchase price is irrelevant.
The same goes for the amount spent on improvements by the original owner.
The tax basis is stepped up to the home’s market value upon the owner’s passing.
👍 If you plan to sell the property soon after inheriting it, you probably won’t have any taxable gain.
--Tax Loss--
In all these scenarios, we’ve been talking about taxable gains…
📉 …but what happens if you need to sell your home for a loss?
Unfortunately, if it’s a personal use home, there’s no tax deduction that you can claim.
You will assume 100% of that loss.
🧐 This is just one more reason why it’s so important to approach your real estate transactions with the utmost care.
Having the right agent guiding you through a sale or purchase can have a huge impact on your finances.
I know this from firsthand experience:
💪 This week, I’m helping yet another home seller close escrow for at least 6 figures over her asking price.
That’s at 552 Woodward Blvd in Pasadena.
And today, I helped a wonderful family close escrow on their home purchase at 2325 Roanoke Rd in San Marino.
Through my expertise and negotiating strategies…
…I was able to help them purchase their dream home for $125K below the list price!
🥳️ They are over the moon!
If there’s anything I can do to support you with your real estate needs…
…I invite you to reach out to me at 626-807-6581.
Eva Lin | Broker | Lin Realty Group | 626-807-6581
DRE01817694 | DRE02097017
A quick disclaimer:
The content I’ve shared today is for general informational purposes only and should not be construed as investment or tax advice. Consult your licensed tax professional for guidance on how a real estate transaction will impact your finances. Information is accurate to the best of my knowledge, but should be verified.


You May Also Like

Leave a Reply

Your email address will not be published. Required fields are marked *