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A net gain on a home sale of $680k potentially could lead to having to pay capital gains taxes. But in many cases, you won’t have to pay taxes on the full amount of the gain. And you may be able to shield all of it. This is due to an exclusion that protects from taxation up to $500,000 in gains when you sell your primary residence. The exact amount you can exclude will vary depending on the circumstances. And there are moves you may be able to make to reduce, delay or even eliminate taxes on a home sale. Capital gains taxes are sensitive to your specific situation, so consider consulting with a financial advisor about your course of action.

","

Capital Gains on Home Sales

","

Any time you sell an asset for more than you paid, you generate a capital gain. The IRS considers this gain to be taxable. That applies to a gain on sale of any asset, including securities and investment real estate. However, due to the Section 121 Exclusion – named after a section of the tax code – when selling a personal residence up to $500,000 of the gain may be excluded from taxation.

","

How much you will be able to shield from taxes may vary. To begin with, the $500,000 exemption is only available for taxpayers who are married and file tax returns jointly. If you’re an individual filing singly, you can exclude only up to $250,000 of your gain.

","

You may not be able to get any exclusion at all, if you have not lived in the home for at least two of the preceding five years. The years don’t have to be consecutive, but the time you’ve occupied the home must total at least two full years out of the previous five.

","

If you lived in the home for a shorter period, the entire gain would be taxable. And it’s only for a principal residence. Vacation homes, second homes and investment property don’t qualify.

","

Also, it must be at least two years since the last time you claimed the 121 exclusion. You can do it as many times as you want up to your lifetime exclusion limit, but not more often than every two years. Before 1997 there was a one-time lifetime exclusion of up to $125,000 for homeowners aged 55 or older. The Taxpayer Relief Act of 1997 made a number of changes, including scrapping the one-time lifetime exclusion and age requirement.

","

A financial advisor can help you stay on top of changes to tax law and strategize accordingly.

","

Capital Gains Tax Rates

","

The specific tax you may owe can also vary. A gain by a seller who has owned the home for less than a year is considered a short-term capital gain. This is treated like ordinary income with the tax using regular federal income tax brackets that go up to a top marginal rate of 37%.

","

If the seller has owned the home for at least one year, on the other hand, long-term capital gains tax rates apply. These are generally lower than ordinary income rates, going from zero to a maximum of 20%.

","

A Capital Gains Example

","

A married couple who netted $680,000 from selling their principal residence after living in the home at least two of the preceding five years usually would be able to exclude $500,000 the gain, assuming they have not used the Section 121 exclusion before. This means $180,000 could be subject to taxes.

","

If they had a combined income of $100,000, they would normally be in the 22% marginal federal income tax bracket and owe federal income taxes of $14,261. After selling their home, the $180,000 of non-excluded gain on their home sale would be subject to capital gains taxes.

","

","

The applicable capital gains tax rate can vary. It depends on whether the seller has owned the home for at least one year before the sale and also on the seller’s income tax bracket. A seller who has not owned the home for at least one year normally would have any gain taxed as ordinary income, in this case at the 22% income tax rate.

","

For a sale where the home was owned for more than one year, the preferred capital gains rates of 0%, 15% or 20% would apply, instead of regular income tax rates. Your capital gains tax rate is also dependent on your income.

","

This married couple of with income of $100,000 and a taxable gain of $180,000 after the $500,000 exclusion would pay taxes on the gain at a rate of 15%. This would mean capital gains taxes of $180,000 times 15% or approximately $27,000.

","

A financial advisor can help you determine whether you’ll owe taxes on your home sale depending on your specific circumstances. Get matched with a financial advisor.

","

Other Strategies

","

If it looks like you might owe capital gains taxes on part of the sale of your home, you may be able to adjust the home’s cost basis by deducting the cost of some improvements from the sale price. This reduces the amount of the gain and the resulting tax. For instance, if you had spent $20,000 to replace a roof and $40,000 to add a bathroom, you might be able to increase the cost basis by $60,000 and reduce the taxable gain by a similar amount.

","

Another method to consider is a like-kind exchange, or a 1031 exchange, after another tax code section. To do this, you essentially trade one investment property for a lower-priced one. Done correctly, you won’t owe any taxes on the difference in the prices of the two properties until you sell the lower-priced one.

","

Like-kind exchanges can’t be done with a principal residence, however. It’s only for investment property. To meet the restrictions, you would have to convert your home into an investment property by renting it for at least two years before the sale. Then you would have to rent out the home being purchased a similar period after the sale. Only then could it be used as the retiree’s principal residence.

","

Tax-loss harvesting may also be helpful to reduce your tax bill. This works by applying a loss on the sale of another asset to reduce the capital gain on the sale of your home. Say you sold stocks for a loss of $60,000. By applying this loss on a stock transaction to the gain on your home sale, you could reduce the capital gain on the home transaction. Specific rules apply, so it may be prudent to speak with a fiduciary financial advisor about your strategy.

","

Bottom Line

","

You can often shield from taxes all or part of the gain when selling a home. To use this, you have lived in the home for two years before the sale. You can $250,000 if you are a single filer and $500,000 if you file jointly. If your gain is more than that, or if you can’t exclude any at all, the tax will depend on how long you owned the home. The gain is likely to be taxed as ordinary income if you owned it for less than a year. For a home owned longer, the lower long-term capital gains rate is used.

","

Tips

","$40","

Photo credit: ©iStock.com/andresr, ©iStock.com/katleho Seisa

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The choice between single and head of household tax filing status can have a sizable impact on the taxes you owe or the refund you receive. Yet many don’t realize they may qualify for the more beneficial head of household status that offers larger standard deductions and often lower tax rates. Taking the time to understand the differences could put hundreds or even thousands of extra dollars in your pocket. A financial advisor can determine if head of household, single or or another status is right for your situation.

","

Filing Status Fundamentals

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You must select a filing status when filing your federal income taxes each year. The IRS provides five options: Single, married filing jointly, married filing separately, head of household and qualifying widow or widower with dependent child.

","

Your eligibility for each status hinges largely on your marital and dependents situation. Single filing status usually applies to unmarried taxpayers without dependents who live with them. Head of household is for unmarried taxpayers supporting dependents, like minor children, who live with them for most of the year.

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Why Filing Status Matters

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Opting for head of household over single status triggers two key advantages: Placing the taxpayer in lower federal income tax brackets and enabling larger standard deductions. These two factors work together to reduce both your tax rate and your taxable income.

","

For example, in tax year 2024 the head of household 12% tax bracket is $63,100 (which is up from $59,850 in 2023) of taxable income compared with just $47,150 for single filers (which is up from $44,725 in 2023). The standard deduction also rises from $14,600 for single filers to $21,900 for heads of household (in tax year 2023 it went up from $13,850 to $20,800). Bigger deductions reduce taxable income, while lower rates mean less taxes owed on remaining income.

","

Filing Status Effects in Practice

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","

Consider a single parent earning $60,000 while providing more than half the support for two dependents who live with them for most of the year. This person qualifies for head of household filing status. Opting to use this status rather than the single filing status moves the parent into more favorable tax brackets for tax year 2023 (which they will file in 2024) and boosts their standard deduction. This combination can save them hundreds on their tax bill. Here’s how it works:

","

If they file as single, they would be able to apply a $13,850 standard deduction to their $60,000 income, leaving taxable income of $46,150. For a single filer in tax year 2023, this taxable income puts them into the 22% bracket. In this instance, taxes owed as a single filer are $5,460.

","

By filing instead as head of household, they are eligible for a much larger $20,800 standard deduction. Now taxable income is reduced to $39,200. Plus, for a head of household filer this income level falls into the 12% tax bracket, significantly below the bracket that applies to single filers with this income. Accounting for lower taxable income and a lower tax bracket, total taxes owed as a head of household filer would equal just $4,390.

","

In this example, the difference in taxes owed based strictly on filing status is the difference between $5,460 and $4,390. That is a savings of $1,070, just for selecting head of household versus single filer.

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Making the Call

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You can’t select a filing status based purely on which one saves you the most. You have to be eligible for the one you select.

","

When deciding on filing status, first assess marital, dependent and household support status. Unmarried taxpayers supporting a qualifying child dependent and paying for over half of household costs likely should explore head of household filing. Run comparisons to see the tax bill impact of head of household vs. single filer status based on income, deductions and tax brackets.

","

As shown in the example, simply changing status could save several hundred dollars for some typical families. Make whether you qualify based on your situation. But if you automatically default to single status, you risk leaving money on the table.

","

Bottom Line

","

","

Selecting the right tax filing status goes beyond basic marital status. For unmarried taxpayers with dependents, qualifying for head of household over single filer status can generate major tax savings through larger standard deductions and more favorable income tax rates. Yet many eligible taxpayers simply claim single status without exploring options. Avoid overpaying by first understanding the key differences in filing single versus head of household, assessing qualification criteria for each and determining the best approach for your personal tax situation. Hundreds or even thousands of dollars potentially are at stake based on what you check on one form entry box.

","

Tax Planning Tips for Beginners

","$58","

Photo credit: ©iStock/PeopleImages, ©iStock/coldsnowstorm, ©iStock/Delmaine Donson

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Every year, charitable individuals and households make one saying a reality when they make a donation to nonprofits: It’s better to give than to receive. However, when you give, the IRS also allows you to receive something in return: Charitable tax deductions. When you donate money to a qualifying public charity, you can deduct up […]

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Every year, charitable individuals and households make one saying a reality when they make a donation to nonprofits: It’s better to give than to receive. However, when you give, the IRS also allows you to receive something in return: Charitable tax deductions. When you donate money to a qualifying public charity, you can deduct up to 60% of your income, alleviating your tax burden. Here’s what you need to know.

","

If you’re planning on making a charitable contribution, a financial advisor can help you identify and claim any eligible tax deductions.

","

What Are Charitable Tax Deductions?

","

Charitable tax deductions are the tax benefits individuals and businesses may receive for donating to qualifying charitable organizations. Specifically, donations to registered nonprofits recognized by the IRS can be deductible. When you donate money or property to a qualified nonprofit organization, you can deduct the value of your donation up to IRS limits from your taxable income when filing your income tax return as long as you itemize deductions.

","

The IRS provides guidelines on which organizations qualify for tax-deductible contributions. Generally, contributions to 501(c)(3) organizations, which include most charitable and religious organizations, educational institutions, foundations, fraternal societies, and certain other nonprofits, are eligible for tax deductions.

","

Deducting your charitable donations is only possible when you itemize your deductions. As a result, taking the standard deduction means your charitable donations for the year don’t impact your taxes.

","

Charitable Tax Deductions Limits

","

If you decide to itemize your deductions, the IRS limits how much charitable deductions can lower your taxes. Specifically, you can deduct charitable contributions of 20% to 60% of your adjusted gross income (AGI). The percentage of your deduction depends on the charitable activity. For example, you can deduct contributions to Israeli charities up to 25% of your AGI if you have income from Israeli sources.

","

Your AGI is your annual income minus specific deductions such as student loan interest, certain retirement account contributions, and a portion of self-employment taxes.

","

Here’s an example of how the limit works: If your AGI is $60,000, the maximum amount you can deduct for charitable contributions is $36,000 ($60,000 * 0.60). So, if you donate that much, you can deduct that $36,000 by itemizing your deductions.

","

Fortunately, if your contributions exceed the 60% limit, you can deduct the excess amount for up to five years. Doing so is called a carryover deduction because you bring a previous year’s deductions into the current year.

","

Using the previous example, say your charitable contributions are $45,000. You deduct $36,000 from this year’s taxes, with $9,000 left over. As a result, you may be able to deduct this remaining $9,000 when you file next year.

","

How Tax-Deductible Donations Work

","

Taking a charitable deduction means more than giving a friend or family member a couple of dollars. Here’s the process for receiving a deduction for charitable activity.

","

Make a Qualifying Donation

","

To benefit from tax-deductible donations, it’s essential to contribute to a qualifying organization. The IRS defines eligible organizations as registered 501(c)(3) nonprofits. These include charitable, religious, educational and certain other nonprofits. Before making a donation, verify the organization’s status to ensure your contribution qualifies for a tax deduction.

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Record Your Contributions

","

Keeping detailed records allows you to accurately report your donations and deduct the correct amount from your taxes. Otherwise, you won’t be able to back up your claim for a deduction if the IRS audits your tax return.

","

Receipts, bank statements, credit card statements and canceled checks can be adequate proof for smaller donations. However, cash donations of $250 or more require a written letter of acknowledgment from the nonprofit that received the donation. Non-cash donations of between $250-$500 (in total) also require written confirmation, such as receipts. Additionally, you must fill out Form 8283 to claim total noncash donations worth more than $500.

","

Include Volunteer Activity

","

While you can’t deduct the value of your time when volunteering, certain expenses related to volunteer work may be tax-deductible. These include out-of-pocket expenses for transportation and supplies directly related to your volunteer activities. Keep track of these expenses (such as a detailed mileage log) to ensure a maximum deduction.

","

Remember the Tax Deadline

","

Claiming deductions depends on when you made them. Specifically, December 31 marks the end of the year and the last day charitable donations count for that tax year. So, donating from January 1, 2023, to December 31, 2023, means you can claim deductions when you file your 2023 taxes in April 2024. However, a donation made on January 1, 2024, isn’t deductible until April 2025.

","

Additionally, how you give affects the date of your donation. Here’s a breakdown of when each donation counts:

","

Check: The day you mailed the check is the date of the donation. So, if you mail it in 2023 and the nonprofit receives or cashes it in 2024, it still counts for 2023.
Credit card: The day your credit card company registers the charge (usually, this is the same day you make the donation). When you pay the credit card bill doesn’t affect the date of the donation.
Stock: The day the trader or broker transfers the gift to the nonprofit.

","

Remembering these boundaries can help you plan strategically when considering how giving affects your deductions. If you’re considering donating appreciated assets, such as stocks, consulting with a tax professional is recommended.

","

Claiming Charitable Tax Deductions on Your Tax Return

","

","

Claiming charitable tax deductions means itemizing your deductions when you file. Remember, doing so means giving up the standard deduction. As a result, itemizing only makes sense if it provides a higher total deduction. Because the standard deduction is sizable, the average taxpayer usually benefits from taking it instead of itemizing.

","

The following standard deductions by filing status for the 2024 tax year can help you see if itemizing is better for your situation:

","

Filing Status	2024 Standard Deduction
Single & married filing separately	$14,600
Married filing jointly/qualified widow(er)	$29,200
Head of Household	$21,900

","

If you calculate your deductions and see that itemizing is better, you’ll need to complete Schedule A when you file. This form allows you to list your deductions and ensure you receive the most tax benefits from your return.

","

How to Maximize Tax Breaks Through Giving in 2024

","

Charitable donations let you support a cause close to your heart and help others when they need it most – and doing so should always be the basis for giving. However, when you give, a secondary benefit is how your tax return improves for that year. These three strategies can help you maximize the tax breaks from your charitable giving.

","

Open a Donor-Advised Fund

","

A donor-advised fund is a philanthropic vehicle that allows you claim a sizable charitable contribution for the year you set it up. You’ll transfer a lump sum to the donor-advised fund account, which then holds the money until you decide how you want to give the money. Even if you don’t donate from the fund that year, you still reap the tax benefit of a charitable gift, but not again in the years when the funds are distributed.

","

Donor-advised funds can provide a rate of return, allowing the lump sum to grow until you donate it. However, the money in the account can’t be returned to your possession; it must be given to a qualified charity.

","

For example, say you have $5,000 you’d like to donate. You aren’t sure which causes you want to support, but you don’t want to lose the tax benefit of donating during the current tax year. So, you set up a donor-advised fund and transfer the $5,000 into it. This way, you can claim a $5,000 donation on your tax return and can take your time researching nonprofits.

","

Remember, you can arrange the donor-advised fund to transfer funds to multiple charities. You can also deposit stocks into the fund. Additionally, you can set the fund to continue making distributions from your estate after your death.

","

Donate Appreciated Stock

","

Stock appreciation can cause unwanted tax consequences because of the capital gains taxes incurred when you sell the asset. As a result, donating appreciated stock is a way to put the gains to good use and eliminate tax implications. When you donate stock that has increased in value, you can benefit in the following ways.

","

Avoid Capital Gains Tax: By donating appreciated stock directly to a qualified charity, you can avoid paying capital gains tax on the appreciation. Instead, the charity takes ownership of the stock and receives its monetary value upon selling it.
Receive a Deduction: If you’ve held the stock for at least a year, you can receive a tax deduction for its fair market value at the time of the donation. This way, you reduce your tax burden while supporting your favorite nonprofit. Remember, depositing the stock into a donor-advised fund also counts as a donation.

","

Make a Qualified Charitable Distribution

","

Taxpayers who are age 73 or older and have traditional IRAs or 401(k)s must take required minimum distributions (RMDs) from these accounts even if they don’t need the money. Not taking your RMD for the year incurs heavy financial penalties. Fortunately, you can direct your RMD to a charity, transforming the money into a qualified charitable distribution (QCD).

","

The benefit of this strategy is twofold. First, a QCD means the money that would have hit your account is a charitable donation, so it doesn’t count towards your taxable income for the year. Second, it satisfies some or all of your RMD threshold, depending on the amount.

","

Bottom Line

","

","

Strategically utilizing charitable tax deductions can significantly impact your philanthropic efforts and your tax breaks. By contributing to qualified organizations, keeping meticulous records and aligning your giving with tax-smart strategies, you can maximize the benefits of your charitable donations. Ultimately, while the primary motivation for charitable donations should be the desire to support meaningful causes, leveraging the deductions the tax code offers means you can make more informed and impactful decisions in your philanthropic journey.

","

Tips for Charitable Tax Deductions

","$71","

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As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":"$7e","email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":"$7f","slug":"arturo-conde-cepf","__typename":"User"}},"category":{"id":"dGVybToxOTUwNw==","children":"$82","databaseId":19507,"categoryId":19507,"link":"https://smartasset.com/tax-filing/articles","name":"Tax Filing","postCount":90,"slug":"tax-filing","ancestors":"$84","parent":"$87","__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Form 8949 is used to report the sale or exchange of capital assets, such as stocks, real estate, or cryptocurrencies to the IRS. It details the purchase and sale dates for each transaction, as well as the proceeds, cost basis and any adjustments. This information is then transferred to Schedule D, where gains or losses are totaled for tax purposes, with sections for short-term and long-term transactions. Accurate reporting on Form 8949 is essential for properly calculating capital gains or losses and complying with IRS requirements.

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If you want to lower your taxes on investments, a financial advisor can optimize your portfolio to lower your tax liability.

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What Is Form 8949?

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Form 8949 is an IRS tax document used to report gains and losses from the sale or exchange of capital assets. The form captures detailed information about each transaction, such as dates the asset was acquired and sold, sales proceeds, cost basis and any necessary adjustments. These adjustments account for factors like disallowed losses from wash sales (selling a security at a loss and rebuying it or a substantially identical security to prevent the loss from being deducted for tax purposes) or adjustments related to inherited property.

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One of the key purposes of Form 8949 is to categorize transactions by how they are taxed. It separates short-term gains or losses (from assets held for one year or less) from long-term gains or losses (from assets held longer than one year), which are taxed at different rates. Taxpayers must also indicate whether and how the transactions were reported to the IRS on Form 1099-B.

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By requiring taxpayers to list individual sales, Form 8949 provides a comprehensive view of all taxable events, helping to ensure proper calculations when completing Schedule D.

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Who Needs to File Form 8949?

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Anyone who sold capital assets during the tax year may need to complete Form 8949, especially if the transactions are reported on Form 1099-B or 1099-S, or were not reported to the IRS at all. This includes:

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Individuals selling stocks, bonds, cryptocurrency, or other capital assets
Homeowners who sold real estate that was not their primary residence

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If there are multiple transactions, each needs to be listed, even if there were no profits earned. Any short-term or long-term capital gains or losses must be categorized based on how long the asset was held.

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Completing Form 8949: Parts I and II

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Form 8949 is divided into two parts to separate short-term and long-term transactions.

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Part I is for short-term gains and losses, which apply to assets held for one year or less. Part II covers long-term gains and losses, applying to assets held for more than one year. This distinction is significant because short-term gains are taxed at ordinary income rates, while long-term gains generally benefit from lower, preferential tax rates.

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Both parts of the form require taxpayers to report transactions based on whether the sales were reported on Form 1099-B. There are three checkboxes in both Part I and Part II:

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Box A: For transactions reported on Form 1099-B with cost basis provided.
Box B: For transactions reported on Form 1099-B without cost basis.
Box C: For transactions not reported on Form 1099-B.

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Accurately assigning transactions to the right part and box helps ensure proper tax treatment.

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Once all transactions are listed, totals from both parts are carried over to Schedule D, where gains or losses are totaled. If the form includes adjustments (e.g., for wash sales), those must be listed in the adjustment column with appropriate codes.

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Reporting Gains and Losses

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Each line of Form 8949 requires detailed information about the asset sold, including:

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Description of the asset: Specify the security, cryptocurrency or property
Date acquired: The original purchase date
Date sold or disposed: When the sale or transfer occurred
Proceeds: The amount received from the sale
Adjustments, if any: Adjustments can be made for things like transaction fees or wash sales

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After listing these details, subtract the cost basis from the proceeds to determine the gain or loss, which you will then list in column (h). Note that wash sale rules may apply if a similar asset was bought shortly before or after selling the original one, disallowing the loss for that year.

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When to Use Adjustment Codes

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In some cases, an adjustment to the gain or loss is necessary. For example, if a broker didn’t report the correct cost basis on the 1099-B or a wash sale occurred, adjustments will need to be reported on Form 8949.

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Common adjustment codes include:

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Code W: For a wash sale
Code B: When the basis reported by the broker on Form 1099-B is incorrect
Code O: For cases involving adjustments not covered elsewhere
Code T: You received a Form 1099-B (or substitute statement) and the type of gain (or loss) shown in box 2 is incorrect

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If an adjustment is made, enter the appropriate code in column (f) and the amount of the adjustment in column (g).

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Transferring Totals to Schedule D

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Once all transactions are listed and gains or losses are calculated, the totals from Part I and Part II of Form 8949 need to be carried over to Schedule D. This form summarizes the overall net capital gains and losses, distinguishing between short-term and long-term transactions.

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If the total capital losses exceed gains for the year, taxpayers can deduct up to $3,000 ($1,500 for married individuals filing separately) of the loss against other income. Any remaining losses can be carried forward to future tax years.

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Bottom Line

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Form 8949 plays a role in organizing and reporting the sale of capital assets, giving taxpayers a way to track gains and losses while meeting IRS requirements. By listing each transaction, including purchase and sale dates, proceeds and cost basis, it helps determine taxable amounts and provides space for adjustments, such as wash sales or discrepancies in 1099-B data. Transferring these totals to Schedule D offers a summary of short-term and long-term gains or losses, allowing for proper calculation of taxes owed or deductions available.

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Tax Planning for Investments

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