Article Date:
August 2021

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Refresher: Principal Residence Gain Exclusion Break (Part 1 of 3)

With residential real estate markets surging, significant unrealized gains are piling up for many homeowners.


That’s good news if you’re ready to sell, but what about the tax implications? Good question.


Thankfully, the federal income tax gain exclusion break for principal residence sales is still on the books, and it’s a potentially big deal for prospective sellers. If you’re unmarried, the exclusion can shelter up to $250,000 of home sale gain. If you’re married, it can shelter up to $500,000.1 That can really help!


This is Part 1 of our three-part refresher course on understanding the twists and turns necessary to realize the maximum federal income tax savings out of the home sale gain exclusion break, which might be more valuable than ever right now. Let’s get started.


Gain Exclusion Basics


Unmarried homeowners can potentially exclude gains up to $250,000, and married homeowners can potentially exclude up to $500,000. You as the seller need not complete any special tax form to take advantage.


Report the taxable part of any principal residence gain on Schedule D of Form 1040. The current maximum federal rate for long-term capital gains is 20 percent or 23.8 percent if you owe the 3.8 percent net investment income tax (NIIT). These rates assume that lawmakers will enact no retroactive tax rate increase on gains recognized in 2021.


If part of your gain is taxable due to business or rental use of the home, you must also complete Form 4797 (Sales of Business Property). On Form 4797, you’ll calculate how much of your ... Log in to view full article.

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