How To Avoid Taxes When Selling A House! $0 Capital Gains Tax!

congratulations you are thinking about selling your house in this video i'm going to break down the tax implications of selling a house whenever you are selling an asset of any type you have to consider whether or not the sale of that asset is going to be subject to capital gains tax which can be up to 20 percent so a good chunk of money for example if you are a single filer on your tax return and you make between 40 000 and 440 000 in a single year you will have a capital gains tax rate of 15 that 15 will apply to any asset that you sell that you have held on to for longer than one year if you haven't held on to it for longer than one year then your tax rate on the sale or the gain of selling that asset will revert to your individual tax rate so if you are in a 20 tax bracket then you would be taxed at 20 obviously taxes when most people think of it are not fun right most people trying to avoid as much tax as possible and i am all for that so i'm a cpa and i love to minimize my tax liability as much as legally possible and i've always said this there is two ways to make more money you can either increase your revenue or you can decrease your expenses so minimizing taxes can have a huge impact for example if you sold an asset and you had a gain of fifty thousand dollars and you were getting taxed at fifteen percent that is seven thousand five hundred dollars in taxes what's up everybody my name is greg acton welcome to my channel i am a cpa with the goal of changing the world making it a better place by helping people with their personal finances so if you have not done it yet please consider subscribing share this with your friends i have a goal of a hundred thousand subscribers by the end of july 2021 so help me out and changing the world one person at a time anyways it is very easy to see that you could lose a significant portion of the gain on a sell of an asset just to taxes the good thing is is there is some pretty awesome loopholes within the tax law to allow you to avoid taxes completely when you sell a house so there are a few rules when you are selling a residence or a house that you can put into place to make sure that you do not pay taxes the first rule is kind of like a time rule meaning you have to have that house that you are selling be your primary residency for at least two of the last five years the second rule is an ownership rule so that means you have had to own the house for at least 24 months so that means you can't rent a house for a year buy the house live in it for a year and then go try and sell it and take advantage of this rule because that means you haven't owned it for two years even though you've lived in it for two years and then the third rule on this is the irs does not want you to take it on multiple houses within a certain time frame so they make sure that you haven't taken these this exemption these this exemption and thrown in an accident for some reason the irs doesn't want you to take this exemption multiple times within a certain time frame so you can't take this exemption within the last two years you can only take it every two years you might be wondering how you can take the exemption multiple times and it would mostly be for people who own multiple houses so say you owned a house you lived in it for two years you owned it for two years and then you started renting it out and you moved to a new house you owned it for two years you lived in it for two years and then you wanted to sell both houses well you can't take the capital gains exception on both houses you can only take it on one unless the sell of those houses is spread out by more than two years so if you meet these three rules the time rule the ownership rule and the past exemptions rule then you can sell your house and all of the profits that you will get from it are tax-free boom big savings big savings tax savings avoiding taxes all of that leads to you smashing the like button on this video but be warned there is a limit on how much you can claim exemption to but that limit is extremely high so that is a good thing if you are a single tax filer and you have a gain of more than two hundred and fifty thousand dollars on the sell of your house anything above that two hundred and fifty thousand dollar gain will be subject to capital gains tax and if you are filing your taxes jointly with your spouse then that limit doubles so for example for me to be taxed on a house that i've passed all of those tests that i've mentioned earlier i would have to have a gain greater than half a million dollars so for the large majority of us those limits are sufficient to handle any gain that we have and most likely any game that we have would be completely tax free given that we've passed the three tests all right what if you don't pass all three tests what if you bought a home you lived in it you lived in it for 23 months so just shy of two years you owned it for 23 months you don't pass this thing sad day taxes this is exactly what happened to me and my wife so we bought a house and we lived in it for 23 months one month shy of two years and you may be thinking well why don't you just hold on to it for another month stay there and then move we didn't have that luxury because we needed to move and i was moving for work i had to completely sell the house moved so i could start a new job so the only way i could do it is by having this house for 23 months one month shy of having big tax savings you were so close needless to say i was bummed out but then i did a little more research and it turns out there is a loophole to the loophole in the tax law and for some reason the tax law loves to do that they love to make exemptions to exemptions to exemptions so that way there's all these tricky weird ways of saving on taxes which is good for the taxpayer but don't kid yourself the irs loves to get their tax revenue so sometimes those exemptions do not play in our favor but this particular one does so i am going to run you through my exact home sale and we are going to show you how i was able to do it with a gain absolutely no taxes so my wife and i initially bought our first house for 270 000 23 months later one month shy of that two year mark we sold the same house for 329 000 so we had a 59 000 game so in this example if i had to have paid capital gains tax at 15 then my tax would be eight thousand eight hundred and fifty dollars which is a huge chunk of change one that i was super bummed out that i was gonna have to pay in taxes but just like i mentioned before i moved and i moved for work so there's a cool little rule if you move an additional 50 miles away from your current workplace to go to a new job you get to claim exemption on the profits of your house which i did i ended up moving 250 miles away from where i had previously been working for a new job so i was able to claim exemption however there is a limit so just like i said before there is a limit on the exemption amount that you can claim for capital gains tax for a single person that is 250 000 and for a married person that is 500 000 now i lived in my house for 23 months so the irs says if you are moving for work i can take 23 24 so i take that little portion apply that to my limit of 500 000 and that is the new limit that i would have so do all the math it is going to be a pretty high number i'm assuming it's going to be above 450 000 i'll put it up there once i actually do the math on this thing and then that's my new limit like i said before though those limits are pretty dang high so for me it completely covered my gain and i was actually able to sell my house completely tax-free boom tax savings love it smash the like button so for example if you stayed in your house for just one year instead of two years that means you get to take up to half of the max of that exemption so if you are single then that means you could have a gain of up to 125 000 tax free and if you are married filing jointly then that means you get to have a gain of up to 250 000 completely tax-free if you are moving an additional 50 miles away from your current work there are a few other exemptions or a few other ways that you can get out of paying taxes on the sale of your home another one is if you have to move for medical reasons so if you moved because you had to go somewhere else for medical attention then you can claim an exemption i'm assuming it's very similar to moving for work you get to claim an exemption and you won't be taxed on the gain of the cell of your house so there it is there is a quick and dirty explanation of how you can sell your house without having to pay capital gains tax and avoid all of that tax a pro tip if you fall into that situation that i explained before where you have two houses and one of them was a rental and you lived in it for two years then you moved and you lived in another house for two years then you can only take the exemption on one house so if you're going to sell both houses within a year obviously pick the house that has the biggest game gained to claim that exemption and that's a simple election on your tax return so if you sell two houses you want one to not claim the exemption and then you want another to claim the exemption that way you get the biggest tax savings so pick the one with the biggest gain claim the exemption on that one thanks for watching if you have not done it yet please subscribe it'll help me hit my goal of 100 000 subscribers by july the end of july in 2021

Channel: Greg Acton, CPA

Views: 80,037

Keywords: Capital Gains Tax, Capital Gains, Selling A House, How To Avoid Capital Gains, How to Avoid Capital Gains Tax, Selling A House Tax Free, Tax Free Sell, Personal Finance, Taxes, Will I be Taxed When Selling My House, Will I be Taxed when I sell my house, Tax Implications, Real Estate Investing, Real Estate Taxes, Money, Investing, Selling Personal Residence, Selling House Taxes, Taxes When Selling Personal Residence, Taxes When Selling Home, Taxes When Selling House, Capital Gain

Id: DPMgVMnN2CE

Length: 11min 20sec (680 seconds)

Published: Tue Sep 15 2020