How are home sale gains exceeding $250,000 taxed?

May 3, 2004

Subject:  Question on selling my first home
From:  John
Date:  Thu, 29 Apr 2004

I’m selling my first home. I know that I qualify for a $250,000 exclusion as a single person who meets the requirements. How is any gain exceeding $250,000 taxed?

Some people told me that if I invest the excess gains in other real estate, I can avoid any tax. Is that right?


Date:  Fri, 30 Apr 2004

Hello John,

Assuming you have only used the home as a principal residence and not claimed any depreciation deduction with respect to the home, any excess gain will be taxable as long-term capital gains, eligible for a 15% maximum federal tax rate. Individuals in the 10% or 15% brackets are eligible for a 5% tax rate for part of the gain.

A sale of a principal residence doesn’t qualify for a tax-deferred exchange, so investing in other real estate won’t help you avoid tax on the gain.

Good luck!
Mike Gray

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