Newsbreak: Home Sellers See a Whopping 21% Profit Increase in 2022, but Beware of the Sneaky Capital Gains Tax That Can Eat Away Your Sales!

Despite the cooling market, home sellers in 2022 made a 21% profit increase from 2021, with the typical sale being $112,000. However, high-dollar home sales or long-term ownership can trigger an unexpected bill, as home sales profits are considered capital gains with federal tax rates of 0%, 15%, or 20%, depending on the seller’s 2022 taxable income, according to an article published by ATTOM, a nationwide property database, on January 26, 2023.

Although capital gains taxes can be a significant burden for those with a lot of appreciation and embedded gains, most sellers’ profits fall under the $250,000 or $500,000 exemptions, according to a report by CNBC on February 18, 2023. To qualify, the report added, the property must have been owned for at least two of the last five years and been the seller’s primary residence for at least two of the past five years.

Home  Sellers can lower their taxes by increasing their home’s basis and keeping records of improvements. Expenses associated with selling the home can also be deducted from the sales profit. Keeping receipts organized can help identify potential reductions in profit.

According to Mark Steber, a chief tax information officer, you can qualify for capital gains exemptions multiple times as long as at least two years have passed since the last claim, as reported by CNBC. The IRS has exceptions for certain circumstances, such as divorce, widowhood, and military service, which are detailed on their website.

Take a holistic approach to tax returns. Consider the timing of a sale based on expected income and use strategies to offset tax liability when expecting a sizable gain, according to Anjali Jariwala, founder of FIT Advisors in California.

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