Federal Capital Gains Tax On Real Estate

How do I avoid federal capital gains tax on real estate?

How to avoid capital gains tax on a home sale Live in the house for at least two years, See whether you qualify for an exception, Keep the receipts for your home improvements


When you sell a property, you are subject to federal capital gains taxes. This means that you must pay taxes on any profits you make from the sale of the property. Capital gains taxes can be complex, and the rules vary depending on the type of property being sold and the amount of time it has been owned. In this article, we will explore federal capital gains taxes on real estate and provide answers to some frequently asked questions.

What Is a Capital Gains Tax?

A capital gains tax is a tax imposed on the profits from the sale of a capital asset. Capital assets can include stocks, bonds, real estate, and other investments. When you sell a capital asset for more than you paid for it, the difference between the purchase price and the sale price is considered a capital gain. The amount of the capital gain is subject to taxes.

How Does the Federal Capital Gains Tax Work?

The federal capital gains tax is calculated based on your marginal tax rate. Your marginal tax rate is determined by your taxable income and filing status. For example, if you are single and have a taxable income of $50,000, your marginal tax rate would be 22%. That means any capital gains you make would be taxed at 22%.

The amount of the capital gains tax depends on how long you owned the property before selling it. If you owned the property for one year or less, it is considered a short-term gain and is taxed at your marginal tax rate. If you owned the property for more than one year, it is considered a long-term gain and is taxed at a lower rate. The current long-term capital gains tax rate is 15%.

Frequently Asked Questions

What Is an Example of a Capital Gain?

An example of a capital gain is if you purchase a house for $200,000 and sell it for $250,000. The difference between the purchase price and sale price is $50,000, which would be subject to capital gains taxes.

Are There Any Exemptions From Capital Gains Taxes?

Yes, there are several exemptions from capital gains taxes. These include:

  • If you are in the 10% or 15% tax bracket.
  • If you sell your primary residence and meet certain criteria.
  • If you sell inherited property.
  • If you sell property used for business purposes.

Are There Any Tax Deductions Available?

Yes, there are several deductions available for capital gains taxes. These include:

  • Investment Expenses: You can deduct any expenses related to buying or selling investments such as broker fees, legal fees, and other costs.
  • Home Office Deduction: If you use part of your home as an office, you may be able to deduct a portion of your mortgage interest and property taxes.
  • Charitable Contributions: You can deduct any donations made to qualified charities.


Federal capital gains taxes on real estate can be complex and vary depending on your filing status and the amount of time you have owned the property. It is important to understand how these taxes work so that you can plan accordingly when selling a property. If you have any questions about federal capital gains taxes on real estate, it is best to consult a qualified tax professional.