The information you were given about being able to delay capital gains tax for two years is not correct. You are subject to capital gains tax on any gain you have from the sale of your property in the year that the sale is made, regardless of whether or not that property has a homestead exemption. However, if the home you plan to sell is being used as your primary home, then you may not owe any tax, or you will at least owe tax at a reduced amount.
Under current regulations, you are allowed to sell your primary home, and you can exclude $250,000 (or $500,000 if you are married filing a joint return)from any gain you have, before any excess gain is subject to tax.
In order to be considered your primary home, you must have owned the home for at least 2 years and you must have lived in the home for at least 2 of the last 5 years. This may be where someone was thinking you delayed the tax for 2 years, but that is not the case.
You do satisfy both rules
. You have owned the home since 1990 and you have used this home as your primary home, so you will be allowed to claim either the $250,000 exclusion or the $500,000 if you are married.
When you sell the home your gain is figured by taking your selling price less your basis. Your basis is what you orginally paid for the home plus the cost of any improvements you have made. So as an example, if you originally built this home for $100,000 and you now sell it for $700,000, you would have a gain of $600,000. However, if you are married, you can deduct $500,000 from that gain, which would actually end up giving you a taxable gain of only $100,000. That gain is taxed as a long term capital gain, and that tax rate is capped at 15%.
If you are married and filing a joint return, then as long as your gain is $500,000 or less on this property, you would not end up owing any tax at all. But if there is tax due, it is due in the year of the sale. There are no options to defer the tax for 2 years for any reason.
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