Irs Capital Gains Tax

Unless you work for the IRS capital gains are probably something very foreign .In fact, most people, or 8 out of every ten people, have no idea what the term even means, However, capital gains tax is not as complicated as it may seem. Capital gains tax is a tax that is charged by the IRS if sell anything considered a capital asset. Houses, vacant property, stocks, bonds, or retirement accounts can all fall under this category. In fact, any item that brings you income not gained through regular employment can fall under the capital gains category. However, there are stipulations that protect you from being taxed when you sell your personal home. Consider the following stipulations.

Length of Residency

The amount of time you live in your home will have an impact on the amount of taxes you will have to pay or whether you will have to pay taxes at all. For example, if you live in your home for at least two years and then sell it for more than you owe you can avoid capital gains taxes. If you live in your home for less than two years but you sell it for the amount you owe, you will not have any income to pay taxes on. No matter how long you live in the home you can only be assessed taxes on the amount of money you earn over the amount you owe.

Things to Consider

If you have a home that you owe 250 thousand dollars on and you sell it for 250 thousand dollars you did not earn any income. In this situation you would not be assessed any taxes on the sale of the property. However, if you have lived in the home more than two years and you sell it for 300 thousand you still will not be assessed any taxes. On the other hand, if you purchase a 250 thousand dollar home, improve the property and sell it for 300 thousand six months later, you will pay capital gains taxes on the fifty thousand dollars worth of income that you earned.

Why Is There A Capital Gains Tax

Most people do not understand why they would pay taxes on a property they have purchased even if they do sell it an make a profit. However, the capital gains tax was created to stop investors from buying houses and turning them to gain a profit without paying taxes on the income earned.