Avoiding Capital Gains Tax upon Sale of your Home

sebfreyCommentary, Santa Cruz Real Estate, Silicon Valley Real Estate

Tax Loophole

A month or so ago I attended the monthly Silicon Valley broker’s meeting of my company. They always have a speaker every month, and last month it was a gentleman from First American Exchange Company. He gave an interesting (if you can believe it!) presentation on Avoiding Capital Gains Tax upon Sale of your Home. Now that home prices have recovered – nearing, hitting or exceeding their all-time peak values in many areas of northern California – many home owners are facing a bit of a tax dilemma. Most home owners are aware that they enjoy a tax exclusion on the gain from the sale of their primary residence: up to $250,000 for single individuals, and up to $500,000 for married couples. It’s one of the best tax loopholes available to middle class Americans. With home values again soaring, a good number of home owners are finding that if they were to sell their house, they’d have a gain which exceeds the exclusion limit, and will potentially be faced with paying significant capital gains taxes. Would it surprise you to know that you can avoid paying tax on more than $500,000 of gain on your home? This can be accomplished if a homeowner converts their residence to a rental. Once the home is converted to a rental, the owners can sell it and use both the Section 121 exclusion of gain and the Section 1031 deferral of gain provisions to exclude some of the gain and defer paying tax on the rest. How it Works Let’s … Read More