Will selling my home with substantial capital gains increase my tax bracket?

by Nicole T. Buckman, CPA | May 07, 2018

I will be selling my home in 2019, and will have substantial capital gains that I expect to pay capital gains tax on. Will this increase my tax bracket for my ordinary income also?

On the sale of a personal property residence, the income is taxed as capital gain income and, therefore, subject to the capital gain rates, whose income is separated from ordinary income. While tax tables have not been officially released from the IRS for the 2018 or 2019 tax years, 2017 ordinary income tax tables ranged from 10 percent to 39.6 percent, while capital gains ranged from 0 percent to 20 percent (some special cases at 25 percent and 28 percent).

Some ways to minimize the capital gains income would be to keep track of any expense of the sale, which can be deducted from selling price. In addition, any renovations made to the property since purchase would increase basis and, therefore, minimize taxable gains. Lastly, if you lived in the home as your principal residence for at least two years during the five years preceding the sale, you are allowed a $250,000 exclusion ($500,000 for joint return filers). 

In conclusion, no, it does not affect the ordinary income tax tables because it is subject to its own tax table. It is important to note the increase in AGI may affect ordinary income, however, leading to disallowed exclusions, credits, etc. The 20 percent capital gains rate bracket in 2017 began at gains equal and greater to $380,451. Gains under this amount were subject to 15 percent taxation.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by:  Nicole T. Buckman, CPA, is with Jones Kohanski & Co. PC in Moosic, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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