When you sell your house, there can be some important tax consequences. It’s a good idea to check with your accountant because people are affected differently according to their income and deductions. The long-term capital gains rate is somewhere between 0 and 20% for most people, although it can be somewhat higher for the wealthiest citizens and/or people subject to the Alternative Minimum Tax (AMT).
Construction improvements made to your home can improve your cost basis so that when you sell your home, the long-term capital gains will be reduced. Save the bills! For example, if you purchased your home twenty years ago for 200k and make improvements of 100k over the years, then your cost basis is now 300k. If you sell the house for 900k, then your capital gain is 600k. However, this can be reduced by 500k (for a couple) or 250k per person. Therefore, the net long-term gain can be 100k. If your capital gain rate is 15% (based on your income) then you’d owe 15k tax on this example. By the way, mortgage origination may be tax deductible. Check with your accountant. Call me. Love, Robin.