The Smart Investor's Guide to Saving Money on Taxes through Primary Real Estate
Investing in real estate can be a lucrative way to build wealth, but did you know that it can also help you save money? By owning real estate as your primary residence, you can take advantage of a tax code that allows you to make $500,000 tax free. The Zac Folsom Group is here to help you learn more.
The Zac Folsom Group is proud to offer expert real estate advice and guidance to homeowners in Kalamazoo, MI, and beyond. One of the key benefits of owning real estate as your primary investment is the ability to take advantage of the primary residence exception to the US tax system. This powerful tool can help you save significant amounts of money when it comes time to sell your home, allowing you to keep more of your hard-earned profits in your pocket.
The primary residence exception to the US tax system is a powerful tool that can help homeowners save significant amounts of money when it comes time to sell their home. According to the IRS, if you use a property as your primary residence for at least two out of the last five years before you sell, you can qualify for a significant capital gains tax exemption. Specifically, homeowners can exclude up to $250,000 of capital gains from the sale of their primary residence if they are single, and up to $500,000 if they are married filing jointly. This exception can be a game-changer for those who are looking to make a profit on their home sale without being hit with a hefty tax bill.
So, how does this exception work, and how can you take advantage of it? Let’s start with the basics. The primary residence exception is part of Section 121 of the IRS tax code, which outlines the rules and regulations surrounding the exclusion of capital gains from the sale of a home. In order to qualify for this exemption, you must meet a few basic requirements. First, the property must be your primary residence, meaning that you have lived in it for at least two out of the last five years. Second, you cannot have excluded capital gains from the sale of another home in the two years preceding the sale. Finally, you must meet certain ownership and use requirements, which include owning the property for at least two years and using it as your primary residence for at least two years.
Assuming that you meet these requirements, you can exclude up to $250,000 of capital gains from your home sale if you are single, or up to $500,000 if you are married filing jointly. This means that if you sell your home for a profit of $500,000 or less (or $250,000 or less if you are single), you will not owe any capital gains taxes on that profit. For example, let’s say that you bought a home for $300,000 and lived in it for five years before selling it for $700,000. Under the primary residence exception, you would be able to exclude $400,000 of your capital gains from taxation, leaving you with just $100,000 in taxable gains (assuming that you are married filing jointly). Depending on your tax bracket, this could save you tens of thousands of dollars in taxes.
Of course, there are some important caveats and limitations to be aware of when it comes to the primary residence exception. For one, the exemption only applies to capital gains, which means that you will still owe taxes on any profit that you make from the sale of your home above and beyond the exclusion amount. Additionally, the exclusion only applies to your primary residence, which means that investment properties, vacation homes, and other types of real estate are not eligible for this exemption.
So, if you’re looking to save money and build long-term wealth through real estate ownership, turn to the Zac Folsom Group for the expert advice and guidance you need. With our years of experience, in-depth market knowledge, and unwavering commitment to client satisfaction, we can help you achieve your financial goals and secure a bright future for yourself and your family. Contact us today to learn more about the primary residence exception and how it can help you save money and build wealth through real estate ownership in Kalamazoo, MI.