Most people know about some of the tax breaks you get for buying/owning a home but most don’t know about “Topic 701”. IRS Topic 701 basically states that you may exclude up to $250,000 of capital gains from the sale of your house if you’re single, and that number goes up to $500,000 for a married couple.
Now as frustrating as the government can be with all its rules, the stipulations for Topic 701 are actually quite simple. All you have to do is own and have it be your primary residence for at least two of the five years prior to you selling it. Best of all this exemption can be used over and over as long as you meet the criteria and the sales are two years apart.
Remember, save your receipts! If you keep the receipts for any improvements the cost basis for your home would step up.
For example, let’s say you bought your home for $100,000, you put $100,000 worth of qualified improvements and sell your house for $400,000. The improvements step up the cost basis from $100,000 to $200,000 meaning you can sell your house for up to $450,000 and still be within your exemption.
All the best,
Wesley R. Nicholson, Mike Allen and Aaron Everdyke
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