Capital gains tax is a tax on the profits from the sale of assets such as stocks, real estate, & other investments. Since houses are considered an asset, there could be potential for owing taxes when you sell. The capital gains tax is calculated on the difference between the sales price and the original cost. The good news is there is a tax exemption for your primary residence based on your tax-filing status: $500,000 for a married couple filing a joint return and $250,000 for a single filer. To claim this exemption, the home must be your primary residence that you owned for at least 2 years and you must have lived in it for at least 2 of the past 5 years. 

The amount of gains can be reduced by the cost of any improvements and closing costs you've paid. Example of improvements include new roof, landscaping, new furnace, kitchen updates, etc.. Ordinary repairs can't be included. Add the amount of money spent to the initial price you paid for your home to give you the adjusted cost basis. The higher your cost basis, the lower your capital gains.

TIP - Keep records of your expenses including receipts & invoices to support your claims. Refer to the IRS Publication 523 and your accountant for more details about capital gains tax. 

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