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Can you reduce the cost of your gains when you sell your home?

The decision to sell your home can come with a range of emotions. Although you might be convinced it's time to sell, you might still mourn leaving the house in which you raised your children. Or perhaps you must accept the fact that you can no longer take care of the property.

At the same time, there could be several benefits to making a move in a seller's market-including making a nice profit on the sale of your property. Before you make a move, however, you might benefit from some strategies to help reduce the amount of taxes you're obliged to pay on your capital gain.

The IRS and capital gains taxes

Since your profit from the sale of your home might count as income, the Internal Revenue Service might assess capital gains taxes to the difference between what you paid for your home and the amount for which you sell it.

Typically, the IRS allows a single person to exclude up to $250,000 worth of capital gains related to the sale of real estate. If you are married and you and your spouse file taxes jointly, that amount increases to $500,000. However, there are some ways you might be able to minimize your responsibility for paying a capital gains tax on the sale of your home.

Ways you can reduce your capital gains taxes

In your efforts to manage your money wisely, you might look for ways to lower your tax liability. Some of the things you can do you decrease your tax obligation include:

  • Live in your home for more than one year
  • Lower your taxable income
  • Keep track of the expenses related to the sale of your home
  • Offset your capital gains with losses
  • Maintain records of your home improvement expenses
  • Sell your home when your income is low
  • Limit the amount of time you rent out your home

There may not always be a way to altogether avoid paying capital gains taxes on the sale of property. However, knowing that there are ways you may be able to keep more of your profits can be encouraging as you put your home on the market and prepare for the next stage of your life.

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