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By turnercowles
May 31, 2014

Whether you’ll pay taxes—and if so, how much—depends on how long you’ve been in your home. If you’ve lived there for at least two of the last five years, you can pocket up to $250,000 in profits tax-free; $500,000 for couples filing jointly. Anything over that, you’ll pay capital gains taxes.

For assets owned less than a year, you’ll pay taxes at your regular tax rate. Long-term gains are taxed depending on your income; nothing up to $72,500 (couples), 15% up to $450,000, above that it’s 20%.

To calculate your gain, first subtract selling expenses, such as agent commissions and other closing costs, from the sale price. Then you need to calculate your “basis.” This is what you paid for your home, plus some of the closing expenses from the purchase, such as title insurance and recording fees (but not loan points or lender fees), and the costs of any permanent improvements, like a swimming pool or new addition. See IRS Publication 523 for complete details.

There are some exceptions to the two-year rule. If you become disabled, are forced to sell because of a job relocation that requires you to move at least 50 miles away, need to seek medical treatment or care for a sick relative, or other “unforeseen circumstances,” you can pro-rate the taxes on the profit. Check IRS rules and consult a tax advisor. It’s complicated.

Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

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