In Maryland, rising property values have improved the financial situation for many homeowners but have also resulted in unexpected capital gains tax liabilities. A federal tax rule from 1997 stipulates that individuals can exclude only $250,000 and couples $500,000 of equity gains from taxation. As home prices have climbed over 260% since then, nearly one-third of homeowners now exceed these limits, leading to substantial tax bills. Maryland also taxes capital gains as ordinary income, adding to the financial burden on sellers, particularly those owning modest suburban homes.
The capital gains tax exclusion was established to shield homeowners from taxes on the profit from selling their primary residence. The thresholds-$250,000 for individuals and $500,000 for couples-have not changed since 1997, despite home prices soaring more than 260% nationwide.
According to the National Association of REALTORS®, 31.8% of Maryland homeowners now exceed the $250,000 capital gains exclusion for individual filers. Another 6.9% are over the $500,000 limit for married couples filing jointly.
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