How do I avoid capital gains tax at 65?
Current tax law does not allow you to take a capital gains tax break based on age. In the past, the IRS granted people over the age of 55 a tax exemption for home sales. However, this exclusion was eliminated in 1997 in favor of the expanded exemption for all homeowners.
Hold onto taxable assets for the long term.
The easiest way to lower capital gains taxes is to simply hold taxable assets for one year or longer to benefit from the long-term capital gains tax rate.
When does capital gains tax not apply? If you have lived in a home as your primary residence for two out of the five years preceding the home's sale, the IRS lets you exempt $250,000 in profit, or $500,000 if married and filing jointly, from capital gains taxes.
Capital gains tax rates
A capital gains rate of 0% applies if your taxable income is less than or equal to: $44,625 for single and married filing separately; $89,250 for married filing jointly and qualifying surviving spouse; and. $59,750 for head of household.
Whether you're 65 or 95, seniors must pay capital gains tax where it's due. This can be on the sale of real estate or other investments that have increased in value over their original purchase price, which is known as the 'tax basis'.
The capital gains tax over 65 is a tax that applies to taxable capital gains realized by individuals over the age of 65. The tax rate starts at 0% for long-term capital gains on assets held for more than one year and 15% for short-term capital gains on assets held for less than one year.
For individuals over 65, capital gains tax applies at 0% for long-term gains on assets held over a year and 15% for short-term gains under a year. Despite age, the IRS determines tax based on asset sale profits, with no special breaks for those 65 and older.
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they moved out of their PPOR and then rented it out.
While you'll still be obligated to pay capital gains after reinvesting proceeds from a sale, you can defer them. Reinvesting in a similar real estate investment property defers your earnings as well as your tax liabilities.
For example, in 2023, individual filers won't pay any capital gains tax if their total taxable income is $44,625 or below. However, they'll pay 15 percent on capital gains if their income is $44,626 to $492,300.
Do I have to buy another house to avoid capital gains?
If you sell your primary residence, you qualify for an exemption from capital gains up to $250,000 for an individual or $500,000 for a couple filing jointly. In the past, this exemption was restricted to people who bought another house or reached a threshold age, but that's no longer the case.
- Purchasing a new home.
- Buying a vacation home or rental property.
- Increasing savings.
- Paying down debt.
- Boosting investment accounts.
The tax doesn't apply to unsold investments or unrealized capital gains. Stock shares will not incur taxes until they are sold, no matter how long the shares are held or how much they increase in value. Most taxpayers pay a higher rate on their income than on any long-term capital gains they may have realized.
Long-term capital gains can't push you into a higher tax bracket, but short-term capital gains can. Understanding how capital gains work could help you avoid unintended tax consequences. If you're seeing significant growth in your investments, you may want to consult a financial advisor.
Social Security earnings are often exempt from federal income taxes. If you file as an individual and your Social Security and other earnings total less than $25,000 per year, you may not have to pay federal income taxes.
This tax is applied to the profit, or capital gain, made from selling assets like stocks, bonds, property and precious metals. It is generally paid when your taxes are filed for the given tax year, not immediately upon selling an asset.
| Rates | Single | Head of Household |
|---|---|---|
| 0% | Up to $40,400 | Up to $54,100 |
| 15% | $40,401 to $445,850 | $54,101 to $473,750 |
| 20% | Above $445,850 | Above $473,750 |
The standard deduction is an amount of money that is subtracted from total income before taxes are calculated. Basically, it is money that you do not have to pay taxes on. In the tax year you reach age 65, you get an increase in the standard deduction, which results in lower taxes.
Most single people with investments will fall into the 15% capital gains rate, which applies to incomes between $47,026 and $518,900. Single filers with incomes over $518,900 will get hit with the 20% long-term capital gains rate.
Capital gains are taxable at both the federal level and the state level. At the federal level, capital gains are taxed at a lower rate than personal income.
Do you have to wait 2 years to avoid capital gains?
The seller must have owned the home and used it as their principal residence for two out of the last five years (up to the date of closing). The two years do not have to be consecutive to qualify. The seller must not have sold a home in the last two years and claimed the capital gains tax exclusion.
As with other assets such as stocks, capital gains on a home are equal to the difference between the sale price and the seller's basis. Your basis in your home is what you paid for it, plus closing costs and non-decorative investments you made in the property, like a new roof.
Taking capital gains in different years
Another option to discuss with your tax professional may be to “spread the sale over multiple tax years — that can help ease the burden,” says Jonathon McLaughlin, investment strategist for Bank of America.
- Make the Inherited Property Your Primary Residence. ...
- Sell the Inherited Property Immediately. ...
- Rent Out the Inherited Property. ...
- Disclaim the Inherited Property. ...
- Deduct Closing Costs from the Capital Gains.
Key Takeaways
Long-term capital gains are often taxed at a more favorable tax rate than short-term gains. Long-term losses can be used to offset future long-term gains. For 2023 and 2024, the long-term capital gains tax stands at 0%–20% depending on one's tax bracket.
