10 Jan What tax is owed on a $500K home sale?

Q. If I sell a home in New Jersey for $500,000, how much will I pay in taxes?
— Selling soon

A. We can give you the basics to consider, but the numbers will depend on your specific situation.

The tax is calculated on the gain realized upon the sale, said Steven Holt, partner and chair of the tax law, trusts and estates practices with Mandelbaum Barrett PC in Roseland.

The gain is the difference of the net sales price less the “tax basis” of the property, he said.

And the tax basis is the sum of what you paid for the home plus the cost of improvements.

“If you are married, then the first $500,000 of the gain is exempt from tax — federal and the State of New Jersey,” he said. “The exemption amount is $250,000 for a single taxpayer.”

If you owned the property for more than one year, the excess (if any) of the amount of the gain over the exclusion amount is taxed at a rate of 20%, and possibly as low as 15%, for federal tax purposes, Holt said.

New Jersey treats the entire gain as an item of gross income, but the same exclusions apply, he said

“The New Jersey tax rates are graduated and increase based as the taxpayer’s gross income increases,” he said.

Consider speaking to a tax advisor who can discuss the details of your situation and help you lower that gain, including with explanations about how capital improvements fit into the calculation.

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This story was originally published in January 2024.

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.