You can deduct expenses that increase your property's value or prolong its life (capital improvements), costs of selling the property (like realtor fees, legal fees), and certain closing costs from your original purchase (like surveys, title insurance) from your capital gain, effectively lowering your taxable profit by increasing your property's tax basis. Minor repairs are not deductible; they must be improvements that add value, prolong life, or adapt the property to new uses.
When selling a house, you can deduct the cost of capital improvements (like additions or new roofs), selling expenses (commissions, legal fees), and certain closing costs (title fees, recording fees) from your gain, plus you can potentially exclude up to $250,000 (or $500,000 jointly) of the remaining gain if it was your main home for two of the last five years, according to IRS Publication 523.
For instance, you can potentially use losses in some investments to offset a portion of capital gains taxes in others. For example, if you had a gain of $2,000 from the sale of Stock A, but saw a loss of $1,600 in Stock B, you could take the $1,600 loss and use it to offset part of your $2,000 gain.
Taxpayers who realize a capital gain upon disposition of the shares of a qualified small business corporation or eligible farm property or fishing property (see Section VI) are entitled to a deduction of up to: $1.25M5, $625,000 of which is a taxable capital gain.
The lifetime capital gains exemptions (LCGE) is a tax provision that lets small-business owners and their family members avoid paying taxes on capital gains income up to a certain amount when they sell shares in the business, a farm property, or a fishing property.
Repairs and maintenance costs aren't deductible for CGT purposes, although they may be claimed against rental income during the ownership period. Capital improvements, on the other hand – those that upgrade, enhance, or add value to the property – can be deducted from your gain, helping to reduce your final CGT bill.
You can deduct costs to acquire and improve assets (like sales tax, installation, and major renovations), incidental costs of selling (commissions, legal fees, advertising), and capital losses (up to $3,000 against ordinary income, with excess carrying over) from your capital gains, plus potentially exclude gains from selling your primary home if you meet IRS rules.
One of the simplest yet most expensive mistakes is misunderstanding the difference between short-term and long-term capital gains taxes. Short-term gains — profits from assets held less than a year — are subject to typical income tax rates, which can reach 37% for high earners.
Some capital improvements include adding a room, appliances, floor, garage, deck, windows, roof, insulation, AC, water heater, ductwork, security system, landscaping, driveway, or swimming pool. All may qualify as improvements as they are meant to increase the home's value.
Use a 1031 exchange
A 1031 exchange, also referred to as a like-kind exchange, lets you defer capital gains taxes when you sell a rental property. The caveat is that you must reinvest the proceeds into a similar investment property.
The "6-year rule" for Capital Gains Tax (CGT) in Australia allows you to treat a former main residence as tax-exempt for up to six years after you move out, even if you rent it out, enabling you to avoid CGT on any growth during that period. You qualify by moving out, choosing to treat it as your main home for tax, and can reset the rule by moving back in. If you rent it out for longer than six years, only the portion of the gain after the six-year mark becomes taxable.
Capital gains tax rates
A capital gains rate of 0% applies if your taxable income is less than or equal to: $48,350 for single and married filing separately; $96,700 for married filing jointly and qualifying surviving spouse; and. $64,750 for head of household.
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
Offset any losses you've made on other assets against your gain. So, if you have a share portfolio or family heirloom that sold at a loss, for example, you can use that to reduce the taxable gain against another asset you're selling, such as property.
When selling a house, you can deduct the cost of capital improvements (like additions or new roofs), selling expenses (commissions, legal fees), and certain closing costs (title fees, recording fees) from your gain, plus you can potentially exclude up to $250,000 (or $500,000 jointly) of the remaining gain if it was your main home for two of the last five years, according to IRS Publication 523.
From the proceeds value (or deemed proceeds value), you should deduct the allowable costs, which include the original purchase price, enhancement expenditure (such as capital improvements) and incidental costs of acquisition and disposal (such as legal fees, surveyor fees, stamp duty land tax and estate agent fees).
The primary "one-time" capital gains exemption in the U.S. allows single filers to exclude up to $250,000 (or $500,000 for married couples filing jointly) of profit from selling their main home, provided they've owned and lived in it for at least two of the last five years before the sale. While it's often called a one-time exclusion, you can use it multiple times, but you must wait two years before claiming it again on another property.
Your capital gain (profit) is $200,000. Your taxable capital gain with the 50% discount applied is $100,000. Your estimated capital gains tax obligation is $37,175.