Q: We’re selling our first home, after living in it for the last 6 years. Is it true that I can take an exemption from paying capital gains only once in my life?
Our payoff balance on the mortgage is $98,500 and the home is listed with our realtor for $169,900. We were thinking that unless we had a profit of $250,000 or more each, my husband and I didn’t have to pay capital gains. My mother says, no, we pay it every time we sell, unless we immediately reinvest it into real estate.
A: Your mother means well, but she is incorrect. She is quoting you an old IRS rule, one that has been out of date since around the time that President Clinton and Bob Dole ran for president.
The current IRS rules allow you and your spouse to keep up to $500,000 in profits tax free when you sell your primary residence, provided you have lived in the home as a primary residence for the past 2 out of 5 years.
There are some exceptions, in the case of divorce, death, or illness that would allow you to sell the home and keep a fraction of the profits tax free. You’ll want to read IRS Publication 523, “Selling Your Home,” for details. It is available for free at the IRS Web site, IRS.gov.
Published: Aug 28, 2008