{"id":10827,"date":"2025-02-26T19:59:06","date_gmt":"2025-02-26T19:59:06","guid":{"rendered":"https:\/\/finderica.com\/?p=10827"},"modified":"2025-02-26T19:59:06","modified_gmt":"2025-02-26T19:59:06","slug":"can-we-avoid-a-huge-tax-bill-on-the-sale-of-moms-house","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=10827","title":{"rendered":"Can We Avoid a Huge Tax Bill on the Sale of Mom\u2019s House?"},"content":{"rendered":"\n
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\"ScoreCard<\/p>\n

Dear Penny,<\/span><\/p>\n

My mother\u2019s house is currently worth between $2 million and $3 million. My parents bought it for much less than that. She will turn 80 this year and won\u2019t be in that large house for too much longer. Is there a way for her to avoid a huge capital gains bill when she eventually sells it?<\/span><\/p>\n

\u2013 Mother\u2019s Helper<\/span><\/p>\n<\/div>\n

Dear Helper,<\/p>\n

Congrats to your mother on the appreciation of her property! Owning a home has been an important path to wealth building for American families for several generations, and the opportunity to see significant growth in value (through luck, investment or sweat equity) is increasingly rare, so she\u2019s in a fortunate position.<\/p>\n

What your mother might consider a \u201chuge\u201d capital gains tax bill is subjective, but I can tell you what to expect when she sells the house and how to prepare.<\/p>\n

A homeowner can profit pretty significantly from a sale without incurring taxes. In most cases, selling your primary residence for a profit isn\u2019t subject to any tax. The capital gains tax isn\u2019t meant to disrupt a person\u2019s ability to move from home to home, but it\u2019s set up to collect tax on money gained from wealth-building assets. As such, selling a property you owned only briefly or one you never lived in is usually subject to taxes \u2014 as ordinary income if you owned it less than a year, as capital gains if you owned it for more than a year.<\/p>\n

It sounds like your parents bought the house your mother is living in a long time ago and have been living in it as their primary residence since then. If that\u2019s the case, the sale can qualify for a capital gains exclusion<\/a> on $250,000 in gains (i.e. the difference between the purchase price + cost of improvements, and the sale price). If your mother is filing jointly with a spouse, that exclusion applies to $500,000 in gains.<\/p>\n

If your mother profits more than that on the sale, she\u2019ll owe capital gains tax on the gains beyond the excluded amount. Like income tax, the capital gains tax rate<\/a> is dependent on her taxable income from sources like work, investments or Social Security benefits. This tax rate is almost always lower than the rate that applies to other income, which makes it easier to build wealth through investments and assets than through working. Capital gains tax rates as of 2023 are:\n<\/p>\n