I purchased this home in 1993 jointly with my soon-to-be husband. We paid $138,500. We were divorced in 2009, and the house was quit-claimed to me. I am still single. I was head of household last year, as I still had a kid in college. But next year that won’t be the case, so I will be filing as ‘single,’ I guess.
Last year’s total income (line 9): $50,000
Last year’s AGI: $38,400
This year will be about the same. I turn 65 this year, but I am still working and hope to work for at least 5 more years, as I love my job.
Home improvements were made both before and after the divorce—approximately $200,000 over the years, but I don’t have great records.
The good news is that the house is probably worth about $1.1 million.
$138,500 + $200,000 + $250,000 leaves about $511,500 in capital gains. Does this mean I owe $76,725 in taxes?
I assume the $250,000 amount in your equation above represents your exclusion for having lived in the house two of the last 5 years as your primary residence. If that’s the case, then yes, you will have capital gains tax on that amount. However, it looks like you will be in the 20% bracket for long-term capital gains, so your tax is going to be higher than what you calculated—more like $102,300.
Teagan said: @Cory
So the capital gains adds to my income next year? That is included? And what are the ramifications for Medicare, if I may ask?
Yes, your capital gains are included in your adjusted gross income. Your ordinary income is taxed first. Then your long-term capital gains is taxed. Because you’re over the threshold for the long-term capital gains, you will be in the 20% bracket for those. I’m not well-versed in Medicare.
Teagan said: @Cory
So the capital gains adds to my income next year? That is included? And what are the ramifications for Medicare, if I may ask?
Not a tax or Medicare expert, but…
The Medicare premiums are adjusted by your MAGI—AGI plus tax-exempt interest—so as mentioned, the capital gains will increase your AGI and your MAGI.
The Medicare premium adjustments are tiered and are adjusted yearly. You can find them online, but using the 2024 single-filer rates and your projected gains, you can expect a Part B premium increase from $174.70 to $594 per month and Part D, if used, from $0 to $81 per month. Your Medicare rate is based on your income two years before, so if all this happens in 2024, your 2026 rates would show the increase and then only for 1 year.
That is a good question. I love my house and I love my neighborhood. However, I am less than 1 mile from the beach in Florida. I’m afraid to stay, knowing that the next hurricane could wipe out my home. Yes, I have insurance, but that’s not compensation for the disruption and difficulty. My brother lives in Boston, so I am moving to be closer to family. Since much of my work is remote anyway, it doesn’t matter too much for work.
@Teagan
Understandable. Thanks for sharing! Is the issue selling what Medicare will do? I’m sure there’s tons of options in the real estate world rather than outright selling if you want to keep it and delay those taxes.
@Zeek
Thanks. No, one year of extra Medicare expenses is acceptable. I just want to know how much I will have to purchase a new home near Boston. So, it looks like roughly $1,000,000 after taxes. I could keep the house and rent it out and make a lot of money each month. However, my real estate taxes would go up (they are capped here by ‘homestead exemption’), and I’d still have to deal with insurance and hurricanes.
Capital gains are taxed at 0%, 15%, and 20%, depending on your tax bracket. However, you can avoid capital gains tax when you sell your primary residence by buying another house and using the Section 121 home sale exclusion.
Teagan said: @Ziv
Is that so? So if I buy another house for the exact same price, no capital gains need to be paid at all?
It doesn’t say that. I think that used to be the case—if you turn around and buy another house, there are no capital gains. But is that still true? Since I will realize $500,000 above the exclusion of $250,000, I believe that tax is due. I hope I am wrong and you are right!
@Teagan
Yes true, you are capped at $250k because you are single. However, buying a new property for at least that much will reduce your capital gains tax by that much. Would you rather pay CG tax on $500k or $250k?
