Posted by Dave T on November 24, 2000 at 20:48:41:
Let’s assume that you have owned and occupied your home for at least two of the last five years prior to the sale. If the profit on the sale of your home is $250,000 or less, there is no tax due at all – the profit is tax free!
If you are married, filing a joint tax return, and both you and your spouse meet the two of last five year ownership AND occupancy tests, then up to $500,000 of the profit on the sale of your home is tax free.
The profit does not have to be reinvested in another residence, nor do you have to be a certain age to qualify for this capital gains exclusion. Captial gains tax treatment on the sale of your primary residence is not mandatory either. To take your profit tax free, the only tests you have to meet are the two of the last five years ownership and occupany tests.
As a general rule (there are special hardship exceptions), if you can not meet the two year ownership and use tests, the profit on the sale of your primary residence is ordinary income and taxed at your marginal tax rate.
The maximum capital gains tax on profit in excess of the $250K (or $500K for married filing jointly) exclusion, is 20% if you are in the 28% tax bracket or higher. If you happen to be in the 15% tax bracket, then the capital gains tax rate on the excess profit is only 10%.
Hope this helps. Keep in mind that this is a general overview, and, that the actual tax treatment for your situation is determined by your specific circumstances.