By hope
Being here in Texas with my entire family has pushed me to leave my lonely existence in my small town in Georgia behind. However, I know I have to weigh the ramifications after this move.
To sell or not to sell
After everyone left, my father is really encouraging me to make the move. Even though I countered that I wouldn’t be ready to buy another home, I don’t know where I want to be long term, and the increasing cost of living in this area, he still thinks this is the best move for next year. (He’s also convinced that all my kids will end up in this area eventually, which I can’t argue with.)
Recently, I had an experienced real estate agent visit my home, and let me tell you, the numbers she dished out left me dizzy and wary. Not to mention, she was very impressed with the upgrades and renovations I made to the house.
According to her estimates, I could at least double my initial investment if I sold my house now. This kind of profit changes my life. But before I mentally spent those gains, I knew I needed to understand the tax implications of such a decision. Spoiler: It’s not as simple as it seems.
Here’s what I’ve learned and how I deal with the financial and tax considerations related to potentially selling my home.
Capital gains and what they mean to me
When you sell a home for more than you paid for it, the IRS considers the profit a capital gain. In my case, since I would be making a large profit, I needed to understand how much tax would be charged and at what rate.
- Exclude primary residence
One of the most important pieces of information I discovered is that if you have lived in your home as your primary residence for at least two of the past five years, you can exclude up to $250,000 of earnings from taxes if you are single (or $500,000 if you are married and filing jointly ). This means I am safe. My house will not sell for anything close to $250,000. I bought it for $90,000, so now I expect to make about $100,000 in profit. - Long-term capital gains rates
Any gain over the exclusion amount is taxed as a long-term capital gain if you own the property for more than a year. Rates vary depending on your income: 0%, 15%, or 20%.
Evaluate my options for minimizing taxes
Although it wouldn’t affect me, I felt it was important to understand everything. We all know that my ignorance has been a bone of contention for BAD readers for many years. Try to do a better job by diving deep.
Knowing about taxes has encouraged me to consider what steps I can take to reduce my tax burden if there is an issue. Here are some strategies I like to consider:
- Time your sale strategically
If I sell the home in a year when my income is lower, I may qualify for a lower capital gains tax rate. Since my income fluctuates, this can make a big difference. - Track and demand improvements
Did you know that some home improvements can increase your cost basis (the original purchase price of your home), reducing your taxable gain? I’ve spent money over the years on renovations — like a new roof, updated kitchen appliances, and even landscaping — and I’m now looking through receipts to document those expenses. - Explore 1031 exchange
This is a little trickier, but if you decide to invest the proceeds in another property, you may be eligible for… 1031 exchange. This allows you to defer paying capital gains taxes. This requires careful planning and the help of a tax professional. I actually worked on a few of them in 2023 when I spent the better part of the year working for a local accountant. It’s an interesting concept and not too difficult to navigate. But if it were the case with me, I’d probably hire an accountant to handle it to make sure it’s done correctly. - Charitable contributions
I also learned that donating a portion of your appreciated property to charity can provide a tax deduction. Although this may not be my primary strategy, it is worth considering if you want to combine a financial decision with a philanthropic decision.
The emotional side of selling
Beyond the numbers, the decision to sell my home is a very personal one. This is not just a financial asset. It’s where I built memories with my family. Doubling down on my investment is tempting, but I’m thinking about what leaving this chapter behind us might mean emotionally.
My next steps
I don’t rush into anything. Selling a home — especially one that could yield a significant profit — requires careful consideration not only of what I stand to gain but also what I stand to lose if I settle. (I don’t think taxes would be a concern given the low cost of housing here, but overall, I think this house was a good investment both in the original purchase and in the renovations I made.)
I started thinking about the cost of the improvements I would likely need to make to get the most money if I decided to sell. I want to make sure I understand the whole picture and don’t leave money on the table.
If you’re in a similar boat, my advice is:
- Understanding capital gains exclusion and tax rates.
- Document all improvements to your home.
- Seek professional advice.
Selling a home is a big decision, and taxes are only one piece of the puzzle. But knowing the rules (and how to work within them) can make the difference between a windfall and a surprise tax bill.
Right now, I’m weighing my options and trying to make the best decision for my future. If I sell, at least I will go into it informed and ready to make the most of this opportunity.
Hope is a creative, solutions-focused business manager who helps clients grow their businesses and operate more efficiently by leveraging expertise in project management, digital marketing, and technology solutions. She has recently become an empty nester as her five foster/adopted children spread their wings. She lives with her three dogs in a small town in northeast Georgia and prefers the mountains to the beaches any day. She has the travel bug and does her best to help each of her children finish school and become independent (but it’s hard!) She’s been running her own consulting company for nearly twenty years! Hope began sharing her journey with the BAD community in the spring of 2015, and feels like she’s finally in a place that allows her to truly focus on making wise financial decisions.
