I am married and should qualify for the joint 500k exemption for primary residences. Assuming a 100k/year income, my question is if the IRS will consider our income to be 300k or 800k for the year? Thank you in advance
2 Answers
You have a $700K cap gain. $500K exclusion. So you're left with a $200K long term cap gain.
answered Mar 1, 2017 at 21:37
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I think the question as to whether that gain would be included in Income. Commented Mar 1, 2017 at 21:52
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Cap gains are taxed differently, they are not ordinary income. Not as simple as saying taxed on $300 vs $800. Commented Mar 1, 2017 at 21:53
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@DStanley - I was avoiding the tangent of earned income vs other income. Each is taxed differently, and has other impact to one's full return. The question itself was almost a yes/no question, and the answer is that if OP lived there for 2 of the last 5 years, he got the $500K exclusion correct, and will only show the $200K gain. If you feel there's something else I should clarify in my answer, I'm happy to do so. I went for brevity, and have a basic one line answer. Commented Mar 3, 2017 at 13:52
The gain is sale price - cost basis.
Up to 500k of the gain is excludable. IRS Topic 701 - Sale of your Home. Links from there explain cost basis and rules for the exclusion and explanation of gains and losses.
The non-excludable part will be taxed according to the duration of the investment. It will be taxed as a capital gain.
