You can shred these documents four years from the date you’ve filed the tax return that includes your home sale. Those costs are then added to your stepped-up value to determine whether you owe any capital gains taxes when you eventually sell the property. However, if you decide to use the property as your primary residence, you need to keep track of any improvements you make once you move in. ![]() Even something as small as replacing a garage door can add value to your home (but home maintenance, such as painting and repairs, don’t count).įor those who have recently inherited a property, keeping track of your parents’ or grandparents’ past home improvements isn’t necessary for tax purposes because the home’s cost basis is “stepped up” to the fair market value at the time of the original owner’s death. With the $300,000 basis, your capital gain would be $500,000 and you would avoid paying taxes on all of your profits (assuming you’re filing a joint return). Say you sell your home for $800,000 and make a profit of $600,000. If you can prove you’ve made those upgrades, you can increase your cost basis to $300,000. Here’s why documents matter: Suppose you and your spouse purchased your home 20 years ago for $200,000 and have since added a new roof, remodeled the kitchen and bathroom, replaced your garage door, and made other improvements for a total cost of $100,000. One of her clients in California, for example, had invested about $1 million in home renovations over the years but didn’t have the receipts to prove it, she says. However, you may be able to eliminate or reduce the tax bill if you’ve made significant upgrades to your home-and for that, you need documents.Ĭlients often panic when they realize they may owe taxes on a home sale and don’t have records of improvements, says Mari Adam, a certified financial planner for Mercer Advisors in Boca Raton, Fla. Any profits that exceed this amount are subject to a capital gains tax of 0%, 15% or 20%, depending on your taxable income. Taxpayers who sell a primary residence they’ve lived in for at least two out of the past five years can exclude up to $250,000 in profits from taxes, or $500,000 for a married couple filing jointly. Owners who have lived in their home for decades may be enticed to downsize and cash in their gains. ![]() Home prices logged a nearly 17% annual gain in 2021, with some cities seeing even faster price appreciation, according to the National Association of Realtors (go to “ Where Home Prices Are Headed in 2022,” for more on home prices). The housing market is still making headlines as it sizzles for sellers.
0 Comments
Leave a Reply. |