A.: The government taxes you on the profit that you make when selling real estate based upon your income bracket. Basically, it’s the difference between what you originally paid and the selling price, minus any capital improvements that you invested.
For some people, that can be a substantial amount of taxes. There is some relief, however.
The Federal Government allows a one-time deduction of $250,000 for each partner in a marriage. Thus, if you are a couple, then it would be a $500,000 allowance. If by some chance you recently lost your spouse, then you may still be allowed to take the deduction.
Make sure to retain all records of capital improvements that you may have made to your home. For example, a new kitchen and/or bath, or an addition would all be deductible from the taxable amount. It is best to consult with your accountant to better understand your overall liability when selling a home.
Please send your real estate-related questions directly to firstname.lastname@example.org.