Get top local stories in Southern California delivered to you every morning. > Sign up for NBC LA's News Headlines newsletter. Starting in 2025, single filers qualify for the 0% long-term capital gains rate with taxable income of $48,350 or less, while married couples filing jointly are eligible with $96,700 or less.
You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods.
Unfortunately, there's no age limit to paying capital gains tax. However, you can manage and even reduce your tax burden with the right strategies and information. Here are the basics about capital gains tax rules and rates as well as some tax-saving tactics.
Bottom Line. The IRS allows no specific tax exemptions for senior citizens, either when it comes to income or capital gains. The closest you can come is contributing to a Roth IRA or Roth 401(k) with after-tax dollars, allowing you to make qualified withdrawals on a tax-free basis.
The capital gains exclusion applies to your principal residence, and while you may only have one of those at a time, you may have more than one during your lifetime. There is no longer a one-time exemption—that was the old rule, but it changed in 1997.
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.
What is the 36-month rule for capital gains tax? The 36-month rule refers to the exemption period before the sale of a property. Previously this was 36 months, but this has been amended recently and is now 9 months.
A 1031 exchange, named after Section 1031 of the Internal Revenue Code, allows you to defer paying capital gains taxes by reinvesting the proceeds from the sale of your investment property into a similar property.
If it's your primary residence
You can sell your primary residence and avoid paying capital gains taxes on the first $250,000 of your profits if your tax-filing status is single, and up to $500,000 if married and filing jointly. The exemption is only available once every two years.
You can avoid capital gains tax when you sell your primary residence by buying another house and using the 121 home sale exclusion. In addition, the 1031 like-kind exchange allows investors to defer taxes when they reinvest the proceeds from the sale of an investment property into another investment property.
Capital gains (and losses) apply to the sale of any capital asset. That includes traditional investments made through a brokerage account—such as stocks, bonds and mutual funds—but it also includes assets like real estate, cars, jewelry and collectibles, and digital assets such as cryptocurrency.
However, thanks to the Taxpayer Relief Act of 1997, most homeowners are exempt from needing to pay it.1 If you're single, you will pay no capital gains tax on the first $250,000 of profit (excess over cost basis). Married couples enjoy a $500,000 exemption.2 However, there are some restrictions.
Social Security and capital gains
Keep in mind that up to 85% of Social Security benefits can be subject to tax depending on your overall income, including capital gains. The calculation that determines how much of your Social Security benefits are taxable includes realized gains.
An easy and impactful way to reduce your capital gains taxes is to use tax-advantaged accounts. Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes on assets while they remain in the account.
In California, real property is one of the most valuable assets you can inherit from a loved one. But inheriting real estate that has increased in value over time can trigger capital gains tax consequences when you sell that piece of property.
The 6-year rule allows you to continue treating a former home as your main residence for up to six years after moving out, even if you're earning rental income. By selling within this period, you can claim the main residence exemption, which can substantially reduce your CGT liability.
The real estate scenario applies to all adults, and it's worth reiterating that there are no age-related exemptions from capital gains tax.
In addition to the home's original purchase price, you can deduct some closing costs, sales costs and the property's tax basis from your taxable capital gains. Closing costs can include mortgage-related expenses. For example, if you had prepaid interest when you bought the house) and tax-related expenses.
This tax is applied to the profit, or capital gain, made from selling assets like stocks, bonds, property and precious metals. It is generally paid when your taxes are filed for the given tax year, not immediately upon selling an asset.
As of 2022, for a single filer aged 65 or older, if their total income is less than $40,000 (or $80,000 for couples), they don't owe any long-term capital gains tax. On the higher end, if a senior's income surpasses $441,450 (or $496,600 for couples), they'd be in the 20% long-term capital gains tax bracket.
Capital gains are profits from the sale of a capital asset, such as shares of stock, a business, a parcel of land, or a work of art. Capital gains are generally included in taxable income, but in most cases, are taxed at a lower rate.
Heirs generally do not take over a deceased person's original cost basis, so you would not realize a significant capital gain based on your relative's original purchase price. However, any price appreciation after the date of death could result in a capital gain.