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Home Sale Capital Gains Exclusion -121 Exclusion Explained
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- Опубліковано 15 сер 2024
- Real Estate: Section 121, or the home sale capital gains exclusion, is one of the single largest tax benefits available for homeowners. This video explains in detail the IRS parameters and guidelines. There are some pros and cons in taking this exclusion.
This video reviews what the IRS guidelines are for taking the 121 exclusion. Also a reminder of what the downside might be for those homeowner investors out there.
A Section 121 Exclusion is an Internal Revenue Service rule that allows you to exclude a gain of up to $250,000 from the sale of your principal residence from taxable income. A couple filing a joint return gets to exclude up to $500,000.
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I love it..... Probably the only realtor saying..."don't sell your house". I just subscribed
Ahh...thank you! So glad i could help!!
You are the best mood enhancer for such a sterile subject. You are great. Thank you always for a very valuable info 😍🙏
Wow, thank you! Really appreciate the comment. Means a lot.
What’s so sterile about the subject?
I'll never rent a property out when the government tells renters that they don't have to pay rent and then tell you that you can't evict.
True 👍
Yeah, I sold my rental property over that one!!
Just wait for the next "emergency", no one will be paying rent .
I would add, if you're going to jump into the multiple property game, each property should be purchased as a separate LLC for liability and tax purposes. Also having a dedicated checking account and credit card for each property makes keeping track of expenses idiot-proof, even for someone who's unorganized and terrible at bookkeeping.
Honestly, I don't really follow, and nor do I see much value in the average Real Estate Agent. But you are different. You actually provide a lot of value on this channel and the knowledge you share. Wow, I am super impressed. I wish I had an agent locally like you. Thank you for sharing this. Here is an idea about selling on a 121. Create a S-Corp and sell it to that entity and rent it out
Thank you so much Vinny! You just made my day:)
Thank you! Your video helped me to understand and compare the whole buying again hustle, refinancing costs & benefits, and capital gain exclusions at once. Thank you so much, and you look amazing!
Hello Gregorio, I am so glad I helped. You just made my day!
Best practical video I can find on the subject. Thank you!
Glad it was helpful! You are so very welcome!!
Like your video on capital gains I will be looking closer at my ideas for investing keep up the good work (Whitney tx)
You’ve been really awesome! You just earned my subscription 😊 thanks 🙏
Ahhh..that just made my day!! Thanks so much!!
Straightforwardnesses kills complicated jargon anywhere. 👍🏼
Pain in the neck cost... Love it!!!!
There are a lot of pain in the neck costs to moving..lol! Have a good one!
All in subscriber, echo the previous about NOT Selling! very cool. So yesterday Dave Ramsey told this guy to sell his house in Kentucky, if he wants to buy a 50k tractor and not be in debt. So then I thought maybe I should sell my little beach place. Then today I watched 2 of your podcasts, because you are very pleasant to watch and listen to and so informative. Both of them expressed emphatically your strong emotional regret of selling 5 properties in Orange County. Guess What I sold my beautiful log cabin on an acre of land overlooking a beautiful clear blue lake in N. Idaho, same feeling, except I do not miss the snow. Anyway, finally, I would need to move to the beach for 2 out of the last 5 years, like you said, in order to save on Capital Gains taxes. So Thank You for that advise! This is the long Feb. holiday weekend gonna go to the Beach place and savor the plan although in Long Beach WA we will have a rainy weekend, still fun at the beach. And I love Calefornia, where I lived for about 22 years. People in Cal are some of the most friendly of folks I have ever known. You must know I am making fun of Schwartzenager's accent. Dear Audra, you are the Best!
Wow...I really appreciate the time you took sharing your experiences. I do regret selling several of my homes...but I am happy where I am right now. You are very funny...Schwartzenager's accent. Love it. I think the people out here are very friendly too!! Must be all the sunshine:)
Thank you! Very informative video!
I also regret selling my properties.
Thank you...I regret selling my properties too. I guess we just got to learn from our mistakes:). Appreciate your support
"You will always be rewarded for taking risks in housing."
Only a realtor could say that with a straight face.
Yes...but so many people destroy your property....and stop paying rent.....seen nightmares.....
Just what I wondering about today 😊✨🤙🏾
Perfect! So glad it helped!! Thanks for watching.
121 was not intended for house flipping. It is asinine trying to use it for that purpose because you’d tie too much money in houses and if the market turns or interest rates go up you’d be in trouble.
Great valuable information !
Glad it was helpful! So happy I could help.
@Audria. We are old with three houses. We plan to sell two and put the proceeds in dividends. We love passive income. We find renters not reliable in keeping paying and in maintaining the properties. How do you feel about our plan?
Hello I read online that if you bought your home Prior to Jan 01, 2009 none of this being in the home 2 of 5 years apply to you. For example if I bought my house in 1999 (which I did), and lived in it for 7 years t hen rented it out , (still rented today), none of this should apply to me and im grandfathered in and can keep any profits I make...is this true? How do you interpret this rule?
Leveraging properties with 2nd mortgages and re-financing is risky and can wipe one out in a financial crisis which is unpredictable.
I do agree that there is risk in doing so...it really depends on your financial situation. I am not a big fan of over leveraging yourself to get into another...too risky and no margin for error.
i wish you would do a comparison of keeping your properties vs selling and how the numbers worked out
Hi Chris, its difficult to do that because selling a house in my area may be different than selling a property in your area (appreciation fluctuations in every city/state). It also is difficult to calculate the benefits of selling: Where are you going to put your money? Everyone's situation is different...investing the money after you sell is different for each person too. Its a great idea...just hard to quantify.
It's 2 years out of the last 5 years!....You can juggle that schedule anyway you like....UR welcome
What do you mean out of 5 years....I've owned for 4 years, am looking to sell, and have lived there full time all 5 years. Do I still qualify since I've lived there for at least 2 years full time?
Does this apply for those who have INHERITED property and ALSO lived in the property? Or did we have to also OWN the property during the time we have lived in the property?
If you inherit a property and claim it as your primary residence, the tax base remains the same (no re-assessment of property taxes). If you sell the inherited property, you would want to discuss with your tax advisor. Depending on the inheritance guidelines, you may owe zero.
@@AudraLambert So, what if we don't claim it as "primary residence"? This means we can sell it with the higher basis?
@@dialecticalmonist3405 If you sell your inherited property , the new owner will have the property tax basis reassessed at the higher level (at least here in California). If you decide to keep the inherited property and rent it out (not claiming it as your primary residence), then the property will be reassessed with the higher value/higher property tax assessment. Hope that helps.
I am a widow of 4 years and sold my home I.lived in for 41 years. Will I have to account for all.improvements in the home for that length of time?
Another great video. If I keep soaking up the information you give I can probably pass a broker license test with ease ! Only I’m happily retired Thanks for sharing your knowledge.
Wow..thanks so much! I am so glad you are getting value out of watching my videos. Appreciate the comment.
What some people don't understand about 'Capital Gains' is how the realized appreciation of their property value after selling their home becomes part of their income if it's not a qualified exemption.
What???
Unless you have receipts of money you paid into the house over the years..RIGHT???? PLEASE SOMEONE ANSWER
What happens if you do most of the renovations yourself (husband is in construction) can you only write off the materials paid for or what it would have cost to pay someone to do it?
You only get credit for the receipts you produce. If your husband owns his own business and billed his time through his company name, then you could get a write off. Hope that helps...and thanks for watching.
I get the regret, but real estate is not a sure bet for everyone. One still has to have the income to service multiple mortgages, normal home maintenance, costs between renters, etc. If one isn’t careful, it can be a house of cards. Plus, being a real estate agent you don’t have to pay the same transaction costs as most people. And then there is whether one buys rentals in a market that that has rapid appreciation. Where I live has normal 3% appreciation, not 8-10%+ like other places in CA.
This is a very good point. Homeownership isn't for everyone. There are pros can cons to every investment you make. If you do invest, its important to invest in the right areas: Location Location Location. I have always been taught that diversification of assets is a good idea. I appreciate your comment...very true.
With all kind of hassel and QI fees? Is it best to just pay the capital gain tax?
If in that same year I take huge chunk stock market loss, will that just even out the capital gain tax for that year?
What is your experience?
Thank you. Would you share how you got started. And the method.
I graduated college and worked for a fortune 50 company called Ingram Micro (computer company). I worked my tail off and eventually became their Sales Director at Ingram Micro (worked for them for 9 years). I got married. Had a son. Decided to try a more flexible profession so I jumped into real estate. Real estate is way more demanding than my corporate job, by the way. The key to any thing you want to do is be consistent. I picked up a book (can't remember the name of it), and did exactly what is said for me to do to become a top agent. I mean EXACTLY. I mentored under several professional realtors at the time. I got paid peanuts and held other side jobs when first starting out. I didn't have youtube when I started. If I was a new agent, I would bing watch as many real estate videos as possible...especially the one on contracts. There is so much out there now..read and educate yourself. Your life is unlimited...don't give up.
If I am single , live in house 10 yrs , mortgage is 200k , existing heloc 100k , sell house for 650k -50k commission, gain is 300k , minus the 250k exemption.. so 50k is taxable gain . Correct me if I’m wrong thank you
Wait, what did you purchase your house for? The tax base is calculated off what you purchased your home for + improvements, not what you owe on it.
@@AudraLambert , ok . Yes bought it 10 yrs ago, so purchase price & any renovations ? Correct , initial paid 200k for house and put in 20k in rehab , but not sure if I can find all the receipts lol
@@zeekflash6924 If you purchased the house for $200K +20K in renovations (find receipts please) your cost basis it $220,000. Lets say you sell it for $650,000k. Lets assume $50K (closing costs) add closing costs to tax basis=$270K. Take $650,000 (Sales price) -$270,000 (cost basis)= $380,000. Take that $380,000 minus $250,000K (tax exemption) =$130,000 taxable gain. Now if you can prove that your $100K HELOC was used for upgrading/investing in your property (you will need to have receipts) than you can add that to your tax basis. If your HELOC is used for personal use, you do not get to add that to your property tax base. That is my understanding...I would double check with your tax advisor.
@@AudraLambert , thx u very much , makes sense
What happens when you sell your primary residence and buy another primary residence thats even more expensive
You pay more..JK. If you sell your house and transfer the property tax base, you will keep that same tax base for the amount you sold your property.... The additional overage is taxed at the standard rate for your area...so you would add those two figures together to get your property tax amount. Of course, you will want to confirm this your tax advisor.
Last time section 121 was broadened was in 1997 from 125K to 250K. I think it is time to expand it a little more.
I agree. There are "chats" about increasing the exclusion to $500K if you file single and $1,000,000 if you file jointly. I hope it goes through. :). Thanks for watching!
@@AudraLambert With inflation and how everything has gone up in the past few years, it has to!
Thank you for you feedback. I sold my first 4 unit and when I think about it it makes me mad lol. Yoir right its best to hold. I need cash but I see a better property that can help me
Thanks for sharing!! I hear ya! I've been there too!!
@@AudraLambert welcome i will fight to keep my other 4 units just need to get them rented
@@beatthetrap777 Good for you...just be very selective with. your tenants:).
@@AudraLambert yes I learned the hard way. Its better to wait then get the wrong tenant in. Especially in tenant friendly territory
Hi, do you have to own the property for 5 years AND live in for at least two years, to qualify for the exclusion?
No, it is my understanding that you just have to own your property for 2 years. Some people will rent their property out for a few years so that is why that exclusion guideline exists. You can only take the deduction every two years...I would check with a tax specialist to confirm these details (this is how I have used it in the past). Thanks for watching.
Hello. Im new at this, im in the middle of probate estate situation (no will) who would i need to speak with, to talk about capital gains, my parents bought the house paid in full 2001. Im trying to just buy my brither out, and claim the home under inheritance. Is it a cpa or tax attorney id need?
Your CPA should be able to assist! Best of luck!
I have a property up in Long Beach that I just moved out of (and am currently renting out). It was my primary residence with my wife for 2.5 years. If I sell the house before year 5, the fact that I rented it for the next couple of those years doesn't disqualify me from this credit, right? Basically I want to make sure that the house doesn't have to be your primary residence at the time of the sale to qualify for this.
Hello there, I’ve sold several properties using the capital gains, deduction, and I did not live in those properties. Is my understanding that you have to live in the property to out of the five years period I did link the IRS website where you can verify best of luck to you.
Excellent video! I have a question. If my regular income (single filing) is 37k and I gain over 250k in capital gains. Do I pay capital gains taxes on a house I sold that lived in for four consecutive years? It's a rental. I live in the same house as tenants.
Also, I'd be spending most of my gains on a new home. I messaged my accountant but he has not answered me. I'm not sure if should sell or not. I've owned the property for decades. Thank you!
Hello there! Not really sure of your situation. I would definitely check with your accountant and or financial advisor on the specifics. Here is what I know. It doesn't matter how much you make or what your intentions you have with the money you make on the property. The key here is that you have to live in the home for at least 2 yrs out of the last 5 years and claim the property as your primary residence. If you claimed your property on your taxes as an investment or secondary property, this capital gains deduction would not apply. Now if you are living on the property with tenants, there may be some gray area there. It really comes down to how you are filing your taxes. I would get further clarification with your CPA. Best of luck.
@@AudraLambert Thank you! He finally responded and said I will be able to use the $250,000 exclusion on the profit for the “personal residence” portion of your home, one third. The other two thirds are considered business property and the exclusion would not apply.
I live in the same house as my tenants.
Great video. Does the IRS require proof of primary residency via documentation? What are the expectations? We pay all of our bills digitally (paperless). Any information here would be great! Thank you
The IRS looks at your tax returns to verify if your property is classified as your primary residence. If you are paying for improvements on your property digitally, I would make sure you are creating a file/spreadsheet detailing your expenditures. I have been audited for this is the past..I had no issues because I had all my documentation. Hope that helps.
Thank you, this helps. I purchased the home as my primary residence and claim my annual mortgage interests onto my personal taxes. My mailing address for the IRS is sent to my mother’s home because she is our family bookkeeper. What if the mailing address for my taxes are different? Thank you
so if you haven't lived in your home 5yrs prior to the sale you don't qualify? in my case i have owned the home for 20 years, year 1-10 i lived in it as a primary, then i rented it for the next 10 years, sold it....that means I DON'T qualify correct?
Yes, that is the way I understand it. You need to live in the property 2 out of the 5 past years. You can always move back into the property for another 2 years. I would verify that with your tax advisor.
Do I have to file a 1099s when I'm the closing agent if the seller has a small capital gain on his primary residence and is eligible for the exclusion? The sale price was for $150k with a 70k gain on the sale
Hello Kingston305, no you do not need to file 1099s for your seller. That is there responsibility to report. If you're in California, we have escrows who also file and withhold monies. Your are not receiving any services from your seller, so no 1099. Best of luck!
I need help. Last year we moved out of our home of 30 years which has no mortgage. We spent a lot of money on it because we were planning to offer it on AirBNB. Now, in 2024 we have already begun making money on it and we plan to do that for 5 or 6 years. I am concerned about losing our capital gains tax exception on the house. We had an appraisal done about a year and a half ago. Could that be used as a basis for the future? So confused in North Carolina
Hello there, the way I understand the tax deduction is that you have to live in the property 2 out of the 5 years (once you sell it). If you wait 5 to 6 years making money on the property and you haven't lived in the property 2 years with the last 5, then the deduction doesn't apply. You can always move back to the property for the last 2 years, claim it as a primary residence then get the deduction. I would check with your CPA about the specifics. I know its confusing.
@@AudraLambert There is also the depreciation they have to worry about if the are to declare their income on their property on their tax return. The 2 years of living in the home may not be enough to offset that depreciation when they sell the home. So it's really important for them to consult their CPA before even starting to rent their home. I've been through this several times and it's not a great learning experience. But my wife and I did learn our lesson and now being very careful on how to properly liquidate all our assets through real estate sales.
Thank you for the video, Is it possible to do 50% 121 Exclusion and 50% 1031 Exchange?
Not sure how you would do that...your property is either your investment property (1031 exchange) or its your primary residence where you can take the exclusion. You would have to check with your tax expert. If you claimed your property as your primary residence for 2 out of the 5 years you can take your capital gains deduction. Then if you claimed the other 3 years on your taxes as an investment property...well, you might be on to something. Honestly, don't know. I would ask a tax expert. Great question though.
I helped my dad's buddy build a house every couple years. He lived in it 2 years while he built the next one then sold it.
I'm moving to a tourist trappy small town 4k people, rural area with a significant airbnb market. Because of that home prices are drastically inflated. Almost double the surrounding area. A $350k new build in my current town would sell for $600k-750k in this new location. I could put $250k into land, improvements, permits and materials and build a house worth $750k. I can cash flow the build this year.
If I kept the house and Airbnb it, I could make $60k a season or more. But then the property taxes are double for a rental property. That, fees, income taxes, maintenance etc. Eat into the profits significantly.
Instead of making $500k every 2 years. It would take over 15 years of rental to make that $500k. Then you have to take into account the risk and headaches of being a landlord.
To me.. selling them and pulling in $500k profit on a $250k investment seems like a much better, lower risk path. Build us an upgrade. Invest the profit in a good mutual fund. My goal is to try to create $2 million in wealth over the next 10 years.
If I wanted to go the rental route I would be better off building a resort or campground with smaller units.
Sounds like you've done the research! Most families don't want to or can't move every two years to take advantage of the capital gains deduction. You are thinking like an investor..I love it. The only thing I would calculate into your equation is if the economy did correct and the airbnb market were to pull back, your airbnb property could go vacant. Usually airbnb properties are furnished...that is another expense. The nice thing about renting for a year or more is that your vacancy rate is much lower (usually). The benefit of holding a property long term is the appreciation you experience over the years....not to mention the mortgage interest deduction you can take on your taxes. I live in California where the property values are insane. I invest in properties out here not for cash flow purposes, but primarily for appreciation purposes. Several areas of the nation have properties that cash flow easily, but their property values don't increase as rapidly (except for the last 3 years where everyone's values appreciated drastically). It really depends on where you. live. Sound like where you live, the cash flow on properties are very good...but perhaps the appreciation isn't as remarkable. I'm not in love with building new properties (not my specialty), it takes too long and in California the red tape is cost prohibitive. The stock market is a very volatile market, as well....even mutual funds aren't a sure thing. Obviously, diversification of your assets is the best way to go...limits risk. I do like your idea of building a resort or campground with smaller units. More people wanting to rent smaller spaces/units keeps profits high and limits your exposure to risk. Really appreciate your comment. You'll get your $2m sooner than you think.
@AudraLambert , yeah. In this particular market, the median household income is only $42k and the median home value is $750k.
The only thing propping up values is the rental market.
Luckily, this is in the Midwest and not a high regulation area. I could buy property tomorrow, get testing for septic done, pull permits and start preparing property for building in a couple months.
I don't have my wife on board with moving every 2-3 years yet...
But for $500k tax free profit... avoidance of $100k in taxes and a house upgrade. I'm sure she can be persuaded. 😁
Can just hire out the move to be done for cheap. We would be staying in the same school district.
My wife likes redecorating every few years anyway. Might as well be in a newer nicer house so I'm painting new walls instead of repainting old ones. 😉
I have sold my primary home last year and moved into a home I had as a rental, I’m planning on selling the one I’m living in now to buy another primary home. Do you know if I have to pay capital gains if I use the profit from this one for the new purchase ? Thanks
Hello there! So if you are living in your "rental home" and is was rented for 2 out of the 5 years you can sell it, 1031 exchange into another investment property/rental property. You would then need to rent it out for two years before you move in and claim it as your primary residence to avoid any capital gains implications. I would seek the advice of a CPA. If you sell your rental property and buy another property and claim it as your primary residence, my understanding is that it would trigger a tax implication. I would verify this with a CPA.
Hello !
Love the video. I am trying to find information on how the 121 exclusion would work if I I owned at duplex and rented one side and lived on the other side for 2 years. Any information would help :)
Hi Chris, I would ask your CPA about the specifics. It depends on how you are filing your taxes. Remember, you have to be claiming the property as your primary residence to qualify. If you are not filing this duplex as your primary residence, then the 121 exclusion does not apply. If you are or if you have it separated out, I would bet your CPA could use some weighted calculation for valuation purposes. I am not a tax expert...ask your tax advisor:)
Hello, more info that may help, from my own life experience. I sold a house that was my primary residence, and it was also a duplex. Sold for over $5k, but half of the house had also been a long term rental and for half of the house I was able to do a 1031 exchange, for a fee of $800.00. I bought a place at the beach, free and clear and I am going there this weekend. To do a 1031 exchange, it has to be started a the beginning of the house sale process and a company that does those does every detail all you do is sign the paperwork and find another property to invest in within a time frame. It was very simple process. The Gov. wants to eliminate so take advantage now.
I thought you could only take the "capital gains tax exclusion" every THREE years.
I think once you rent your home out, you lost the primary residence status and lost that capital gain exemption. Just be careful.
I feel like this is incorrect. I mean, if everyone can avoid capital gains through sec 121, then why is anyone paying capital gains? There’s a catch somewhere. No way it’s that easy.
Not everyone pays capital gains...only the ones that make more money on their homes than what the tax deduction limits are. I promise.
What if you have lived in it for more than 5 years?
The 5 year mark is a minimum...you can live as long as you want on the property to take advantage of the deduction...just got to live there for minimum 5 years. Hope that helps. Thanks for watching.
@@AudraLambert Glad to hear that. Thank you for reaching back out!
I am a recent widow wanting to downsize in Palm Beach county, Florida. I have been watching your videos and find them very educational as my dear husband was an accountant and took care of all of our finances. I am told that my house is valued at between $450,000 and $500,00. I still have a mortgage of $23,455 left to pay. I am looking for a smaller,one story attached villa in an active 55+ community. I want to use money from the sale of my existing home to pay for the new home and kitchen, bathroom updates and hurricane windows. I am not sure what it will cost have an appraisal and inspection or to make any repairs. Do you have knowledge of a specific realtor in my area? I did see about 10 properties with a realtor that I felt was top notch but after watching your videos I might need to speak to another. I did speak with two other agents and never heard back . Any possible advice would be appreciated.
Why live in hurricane 🌀 😐 area??????? Omg...your cra cra
@@colettejaques2559 Because I still have close family here.
Yeah but interest rates.....
Its painful...higher rates:(
Do you really want to move from property to property ! Really ?
When I was younger I didn't mind...now, I don't EVER want to move. Just being honest.
Like like
Oh yeah,,,yes,,,you can't rent the property forever and move in for 2 years...Voila,,,you and your partner get the full
benefit of $500K....Again, UR welcome