What will we owe in capital gains on our home sale?

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Q. I am 62 and would like to sell our second home, which we bought in 2014, so we can realize some capital gain to cover retirement expenses. Are we looking at a long-term capital gain tax rate? Our only income is $60,000 a year from my 401(k) and $24,000 a year between the two of us from Social Security.
— Unsure

A. Whether or not you will owe tax will depend on the specifics of your situation.

When a married couple sells their primary residence the first $500,000 of gain is forgiven. For singles, it’s $250,000 for singles.

However, if you sell a second home or vacation home or rental home, the transaction is fully taxable, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He said if you owned the property for more than one year, the gain is taxed at the favorable long term capital gains rate.

Currently, without the second home sale, your income is $80,400 which is made up of $60,000 from your 401(k) and 85% of your Social Security. After deducting the 2021 standard deduction of $25,100 your federal taxable income is $55,300 which results in a tax of $6,241.

You didn’t mention how much the potential gain would be on the sale of your second home, so Kiely offered the following:

A gain of $50,000 would be a tax of $6,241, at 7.35%.

A gain of $100,000 would yield a tax of $11,175, or 11.18%.

A $150,000 gain would have a tax of $18,675, or 12.45%.

A $200,000 gain would see tax of $ 26,175, or 13.09%, while a $250,000 gain would have a tax of $33,675, or 13.47%.

“If the capital gain on the sale of your second home hits $200,000 the Obamacare surtax on investment income kicks in,” he said. “This surtax on $200,000 gain would be $1,155 and at $250,000 it would be $3,055. The above taxes are on top of your current federal tax of $6,241.”

Good luck and consider working with a tax preparer who can examine your entire situation.

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This story was originally published on Jan. 10, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.