We purchased a home in 1998 for $225,000 and we are getting ready to sell it for $284,000. We have made quite a few improvements to the home while we lived here. The home has been our only place of residence for the last 13 years. Will we have to pay capital gains tax?

ANSWER

The BIDaWIZ Team's Answer:

The short-answer is no. According to IRC Section 121, you meet the capital gains exclusion of your home being your primary residence for two of the last five years. Thus, you can exclude up to $250,000 of capital gains, $500,000 if you're a joint filer. Please also note that can you add purchase costs, the cost of improvements, and selling costs to your total cost basis. Therefore, the purchase amount of $225,000 is likely lower than the amount you can claim as your cost basis. Thus, your capital gain will be lower but it won't matter because you'll already meet the capital gains exclusion test.