Ok, so now that you know there is a chance you’re going to owe some money on capital gains, you’ll want to find out if you are subject to some of the exclusions. The good news is if the home is your primary residence, you won’t have to pay up to $250,000 ($500,000 for married couples filing jointly) in capital gains upon the sale of your home if you meet these three conditions:

• You’ve lived in the house for the last two years before selling. You can deduct capital gains on your primary residence. You must live in your home for a minimum of two years out of the last five years of ownership before you sell to qualify for an exemption. Furthermore, the years you lived in the residence do not have to be consecutive.

• You’ve owned your home for at least two years. You need to have owned the place for at least two years before you can claim an exception. If you have not owned the property for a minimum of two years, you’ll be paying at the much more expensive short-term tax rates.

• You haven’t claimed another exemption recently. To qualify for this exclusion, you can’t claim another exemption if you’ve already claimed one during the last two years.

If you meet all three conditions above, you can exclude some or all of the capital gains tax when you sell the home.

However, this exemption only applies to your primary residence. If you were to sell a vacation home or investment property to anyone, including family, you would have to pay full capital gains taxes. It’s important to be aware of investment property taxes you could be held responsible for.

There are several other capital gains tax strategies you can look into to see if you would benefit. Here are a few different ways you can reduce the amount you’ll pay in capital gains.

Tax Strategy #1 Make Improvements

If you improve your primary residence, the cost of those renovations may be added to your home’s initial basis, which can potentially reduce your capital gains when you sell the house. However, these “improvements” can’t be normal wear and tear fixes. This usually means updating a kitchen, bathroom, adding square footage, or a swimming pool. These are things that are costly upgrades to the home and usually are considered. We’re not talking about fixing termite damage, a leaky roof, or making foundation repairs.

Since you’re planning to sell your home, making improvements may prove to be helpful. However, making updates to your home is not a guarantee that your house will sell faster or that you get back the return on your investment. Even if you have excellent negotiating skills and your home is in mint condition, there still is a chance you won’t get the price you want.

→ Need to sell your house fast in Utah? Check out this helpful guide by clicking here.

Tax Strategy #2 Reduce Your Overall Taxable Income

Since the capital gains tax rate can increase from 15% to 20% when your income is above the lower rate threshold, it may help to reduce your taxable income by making pre-tax contributions. Here are some ways you can do that:

• Employee-sponsored or individual 401(k) plan

• Traditional IRA

• 403 (b) plan

• 457 plan

• 529 plan (college savings plan)

• Health savings accounts

• Flexible spending accounts

Tax Strategy #3 Sell When Your Income is Low

If you’re about to retire or were just laid off from your job, it may be an excellent time to sell your home. Remember, your tax rate is based on your income, which means a lower income may translate to a lower capital gains tax.