I am 82 years old and live on a $18,000/month pension. My home is paid for. I am thinking of selling and relocating to Mexico, so I wont be reinvesting the money.
If you are married then you will get all $500,000 in gains tax free. Single the limit is only $250,000, which leaves you paying capital gains tax (20%) on the rest. Remember that the gain is sales price above your cost basis.
As another person mentioned, if it’s from the sale of your primary home, there’s an exemption of $500,000 (married) or $250,000 (single) on capital gains.
You mention “reinvesting the money” – that refers to an older rule regarding rolling forward capital gains on your primary home into another home. That process was eliminated when the $500,000 exemption was put in place.
As for the tax itself, it depends on several variables. Long term capital gains may be taxed at 0%, 15% or 20% federally, and it’s possible for them to also incur “Obamacare” taxes of 3.8%. On top of that individual states vary in their treatment of capital gains, too. In California, for example, capital gains are taxed like any other income, and at rates as high as 14.6% (for folks with incomes over $1million).
The actual rates which will apply generally depend on all the rest of your income, since it all factors in.
Do remember to track down all the information regarding the adjusted cost basis of the house – not just what you originally paid, but also what you spent on certain upgrades (i.e., putting in a new kitchen, new roof, etc). And your capital gains are the sale price minus that adjusted basis. So some of those home improvements may reduce your taxable gains.
It would very likely be worth consulting with an accountant to really get these details right. If, in fact, you have enough capital gains to be taxable – definitely make sure you’re computing them correctly!
More than it could be if unless you get some pro-active planning.
Depending on if you’re married or not, you could pay zero capital gain tax or $50,000 as described by my fellow nerd wallet gurus.
What you should also look at is how that income will increase your provisional income and Modified Adjusted Gross income and will cause more of your Social Security to be taxable and is going to bump you up into a higher Medicare Part B premium penalty phase, which could increase your premiums by over 300% for the next 24 months, even if you’re in Mexico.
At 82, and with $226k/year pension monies you have a plethora of simple pro-active financial planning and tax planning steps that you could take to greatly reduce your tax liability.
It could save you $50k or more!
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