A couple in their 60s faces the decision to sell their hillside home due to health issues, fearing high capital gains taxes could diminish proceeds. They can mitigate taxes by using the home's purchase price and construction costs as tax basis. Up to $500,000 of gains can be sheltered from taxes, and losses from other assets can also reduce tax liability. However, past options for deferring gains through home purchases are no longer available, complicating their financial planning for assisted living.
You'll determine your potentially taxable capital gains by deducting your tax basis from your home sales proceeds. Your basis includes the purchase price of the lot and construction costs.
The two of you can shelter up to $500,000 of home sales profits from capital gains taxes. Capital gains can be reduced if you have capital losses.
Decades ago, you could defer capital gains by buying another home of equal or greater value, but that's no longer the case.
A large gain not only reduces available money for your next life phase but can also increase Medicare premiums due to IRMAA.
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