Do You Pay Capital Gains Tax When You Sell Your Home in Orange County, NY?

By Ammar Iqbal | Real Estate Salesperson, eXp Realty

One of the most common questions I hear from sellers in Middletown and across Orange County is simple: "Will I owe capital gains tax when I sell my house?" For most people selling the home they live in, the answer is no, or at least not as much as they fear. Here is a plain-English overview. If you are just starting to plan a sale, my Middletown, NY area guide is a good place to begin.

What is a capital gain on a home?

Your gain is roughly the sale price minus your selling costs and your "cost basis." Your basis is usually what you paid for the home plus the cost of lasting improvements, like a new roof, an addition or a finished basement. Routine repairs and maintenance generally do not count. Keep receipts for big projects, because they can lower your taxable gain.

The home sale exclusion

Under current federal rules, if you owned the home and lived in it as your main home for at least two of the last five years, you can usually exclude up to $250,000 of gain if you are single, or up to $500,000 if you are married filing jointly. You generally can use this exclusion once every two years. For many Orange County homeowners, that covers the full gain.

When you may owe tax

• Your gain is above the limit. Long-time owners who bought decades ago may have a gain larger than $250,000 or $500,000.
• It was not your main home. Rental properties and second homes do not get the same exclusion. Investors often ask their tax advisor about a 1031 exchange. See my post on selling a house with tenants in Middletown.
• You did not meet the two-year test. A partial exclusion may still apply in some cases, such as a job move or health reasons.

Inherited homes and New York State

If you inherited the home, the basis is usually "stepped up" to its value at the date of death, which often shrinks the gain a lot. My guide to selling an inherited home in Orange County covers the steps. New York State also taxes capital gains as regular income, and sellers who no longer live in New York may have an estimated tax payment due at closing. Your real estate attorney will handle that paperwork.

Plan before you list

Tax rules can change, and Congress has discussed updating the home sale exclusion, so talk with a CPA or tax advisor about your exact situation before you sell. I am not a tax professional, but I can help you estimate your sale price so your advisor has real numbers to work with. Start with a free home value estimate, read my tips on selling a home in Middletown, or browse Middletown homes for sale if you are buying next. Questions? Contact me anytime.