Of all the reasons to downsize your home — like having less wasted space, less junk that you never use anymore, less maintenance to do, fewer home repairs to make, fewer rooms to clean, and more time to enjoy yourself — there’s one upside that nearly everyone gets excited about: saving money.
If you’ve lived in your home for a long time, you may be expecting to make a big profit when you sell — especially if your home is entirely paid off. But there’s one big hurdle left to clear before you can make a clean break from your old home: taxes.
Specifically, there’s a capital gains tax that penalizes people who make a massive amount of money all at once. Which, if you’ve taken good care of your home while it’s steadily appreciated in value over the years, could be a problem for you when you try to sell.
This can be frustrating. Here’s how to figure out whether or not your home’s sale will qualify you for the capital gains tax — and, if it does, how to prepare for it so Uncle Sam doesn’t totally ruin your downsizing party. [Read more…]