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You can sell your primary residence and avoid paying capital gains taxes on the first $250,000 of your profits if your tax-filing status is single, and up to $500,000 if married and filing jointly.
Therefore, if the taxpayer's sister were to sell the house for $100,000, she would not have to pay any income tax because the sales price ($100,000) minus her stepped-up basis ($100,000) would be a capital-gain income of zero. See the explanation under "Rationale for stepped-up basis" (below) for an explanation of why the Tax Code would do this.
The IRS allows single filers to exclude up to $250,000 of capital gains from the sale of their home, and married couples filing jointly to exclude up to $500,000, if they meet certain criteria.
Sale price ($500,000) - Stepped-up original cost basis ($500,000) = $0.00 taxable capital gains On the other hand say that you hold the house for a year, during which time the price of this house ...
From 1913 to 1921, capital gains were taxed at ordinary rates, initially up to a maximum rate of 7%. [11] The Revenue Act of 1921 allowed a tax rate of 12.5% gain for assets held at least two years. [11] From 1934 to 1941, taxpayers could exclude from taxation up to 70% of gains on assets held 1, 2, 5, and 10 years. [11]
One exception to capital gains tax rules is the sale of your primary home. Up to $250,000 — $500,000 for married joint filers — is excluded. Up to $250,000 — $500,000 for married joint ...
Section 1031(a) of the Internal Revenue Code (26 U.S.C. § 1031) states the recognition rules for realized gains (or losses) that arise as a result of an exchange of like-kind property held for productive use in trade or business or for investment. It states that none of the realized gain or loss will be recognized at the time of the exchange.
The remainder of any gain realized is considered long-term capital gain, provided the property was held over a year, and is taxed at a maximum rate of 15% for 2010-2012, and 20% for 2013 and thereafter. If Section 1245 or Section 1250 property is held one year or less, any gain on its sale or exchange is taxed as ordinary income.