If I make a $90K profit on my home, what will I owe in taxes?

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Q. I lived in a house in New Jersey for many years and then sold it. Then I bought another house in the state and lived there for 20 months. If I sell it now for a $90,000 profit, how much will I owe in capital gains taxes? Not sure if it mattes, but my salary is $65,000 a year.
— Homeowner

A. Several items come into play when it comes to what you would pay in tax on the sale of a home.

Here’s what to consider.

Based on your income the capital gain rate you would pay on the sale of your house is 15% on the gain (15% x $90,000), said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

But, he said, there are some exception rules that would decrease the gain to zero.

It all comes under Section 121 of the IRS code.

In general, to qualify for the Section 121 exclusion you must meet both the ownership and use test, Gobo said.

“You’re eligible for the exclusion if you’ve owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale,” he said. “The exclusion amount is $250,000 per person or $500,000 per couple.”

Generally, you’re not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period of the sale of your home. Gobo said.

If you fail the use test, you may still get a prorated exclusion on your capital gains, he said. This applies if you sold your home because of a change in employment, health reasons or other unforeseen circumstances, Gobo said.

For example, if you only lived in your house for a year because of a job change, you would be entitled to a $125,000 exemption — half of the $250,000 unmarried exemption you would have received. Moving into a nursing home also would lessen the two-year requirement to one year, he said.

Consider speaking to a tax advisor who can look at your specific situation and help to guide you.

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This story was originally published on Sept. 21, 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.