Do you have to pay capital gains when downsizing?
Before selling your home, consider how taxes could come into play.
To qualify for the maximum exclusion, you must have owned and used the house as your primary residence for at least two out of the last five years.
There are a few exceptions to this rule. For example, if you move before meeting the ownership and primary use tests due to health reasons, a natural disaster, or other unforeseeable events, the IRS may allow you to take a partial exclusion.5
- The price you paid for the home.
- The cost of any significant property improvements.
- Any costs of selling the home.
For example, say you purchased your home for $300,000 and spent another $150,000 on renovations. You sell the home for $700,000, paying $30,000 in closing costs.
In that case, your basis would be $480,000 ($300,000 + $150,000 + $30,000). That makes your gain from the sale $220,000 ($700,000 - $480,000). Assuming you met both the ownership and primary use tests, you wouldn't have to pay any taxes on the sale since your gain is below the $250,000 exclusion limit.
Just thinking about moving can be daunting, talk to your Synovus financial advisor if you're wondering whether downsizing is right for you. We here to help you think through the details.