TAX FREE CAPITAL GAIN
Preserving the equity in your home is financially prudent. Whether you are selling to buy another property, or selling to make a lifestyle change, it is prudent to maximize your tax savings. By exempting some or all of the gain, i.e. profit, from the capital gains tax you pay on the sale of real estate, i.e. you principal residence you can preserve the equity in your home, and your enhance your ability to buy a replacement home or use the sale proceeds for other purposes.
For those of you in California, remember that California taxes all real estate gains as “ordinary income.” In other words, the California Revenue and Tax code does not offer a reduced tax rate on capital gains from the sale real estate or any other property.
When you sell your home, some or all of any profit – capital gain – you make may be “tax free.” To take advantage of a tax-free gain you must meet both of the following requirements:
1. The house you sell must be your main home or “principal residence.”
2. You must have owned, and lived in, this home for at least two of the past five years.
The following example may help you calculate your taxable capital gain: