An exemption from taxes on home sales for individuals over 55 was a provision in U.S. tax law that allowed individuals to deduct the sale of their homes from their income. A broader homeowner exemption policy replaced this specific exemption in 1997. Despite some outdated information, the current tax legislation only provides a capital gains tax benefit based on a homeowner’s age. As long as you meet specific residency and ownership requirements, all homeowners, regardless of age, are exempt from capital gains tax.
Determining if capital gains will be taxed and how they will be exempted or deferred is complex. A further complicating factor is that Congress frequently adjusts and refines the relevant tax provisions.
How Old Do You Have To Be To No Longer Pay Capital Gains Tax?
Capital gains taxes are not determined based on the taxpayer’s age, whether they are levied on investment property, other investments like stocks, or your residence. Capital gains-related benefits are unavailable to seniors, but taxpayers who reach 65 can deduct an additional amount from their income taxes. Whether you file individually or jointly, the extra deduction can increase your standard deduction by $1,850 or $1,500 for each eligible person.
How Does My Age Affect My Capital Gains Tax Bill?
The taxpayer’s age is not a direct determinant in the amount or percentage of capital gains taxes due on asset appreciation. However, the tax percentage on a gain will be lower in retirement if your total income is lower.
Compared to ordinary income, which can reach a marginal rate of 37 percent, long-term capital gains taxes range from zero to 20 percent. You must pay ordinary income taxes on short-term capital gains (on assets you have held for less than a year). Long-term capital gains are taxed based on income:
When I Sell My Home, How Much Will I Pay In Capital Gains?
If you are 30 or 99 years old, the long-term capital gains tax amount depends on your overall income. Taxes can be reduced or deferred at any age by taking specific steps. As an example, all taxpayers who meet the following criteria are eligible for an exemption from capital gains tax on their primary residence:
In the past five years, you must have lived in the residence for at least two of those years.
At least the last two years have been spent there. In the previous two years, you have yet to claim the exemption. Individuals can exclude gains of up to $250,000, and married couples can exclude gains of up to $500,000.
It is also essential to consider the timing of the sale for which you must pay taxes. If you expect your income to drop, it might make sense to wait until the following tax year to complete your planned sale. You can reduce your taxes if your income is below the tax threshold. It is also possible to time a capital gain to coincide with a loss. Consider the case of selling a property in one year at a loss. Taxes can be reduced by balancing a loss against a gain if you sell another asset for a profit that year.
In the long run, these tactics can help you manage your taxes, regardless of age.
