How Do Capital Gains Taxes In MA Work?

How Do Capital Gains Taxes In MA Work?

  • Trevor Wissink-Adams
  • 09/25/20
Even during the pandemic and sharp economic downturn, Massachusetts home prices have remained steady and in many areas they have increased. This has allowed many homeowners to build equity in their most important asset. If you are looking to sell your home and have built up equity, capital gains tax are something to consider. Read on for everything you need to know!

Exclusion For Primary Residences

If the home you are selling was a primary residence for you during 2 of the last 5 years, then you’re in luck. You are excluded from paying capital gains tax when selling a home in Massachusetts if your profit is less than $250,000 (or $500,000 if married).
Assume that you lived in your home for 10 years, but 2 years ago, you decided to move to Florida for some warm weather. Rather than selling, you kept your old home as an investment property. You have been renting it out for the past two years. If we look at the previous 5 year time period, you lived in your home for the first 3 rented it for the remaining 2. As a result, you qualify for the exemption since you occupied the home for 2 out of the last 5 years. The two year time frame does not need to be consecutive.
Let’s take it a step further and assume you moved out 6 years ago. You can re-establish it as a primary residence by living in the home for the next 2 years before selling.

How Is Profit Calculated?

It’s not as simple as the cash in your pocket once your home has sold. Instead, it’s a calculation based on selling price, original purchase price, cost of improvements, prior depreciation, selling expenses, etc. Contact your accountant for an estimate of your potential profit from the sale of your home.

How Do Multi-family Properties Work?

If you own a multiple family property and live in one unit as a primary residence, only that portion of the property qualified for capital gains exemption. The remaining is strictly an investment property and is subject to capital gains tax. For instance, if you own a triple decker, only a third of the property qualifies for the exemption.
One way around this in a duplex is to live in each unit for 2 years before selling (but that is a lot of moving!). This way, each would have been a primary residence for you during 2 of the last 5 years.

Percentage Of Capital Gains When Selling A Home In Massachusetts

If you exceed the threshold for capital gains exemption, you will pay capital gains tax on any profits over the threshold (not on the entire profit). There is both federal and state capital gains tax. Federal capital gains ranges from 15% to 25%, depending on your income level and filing status. In Massachusetts, for short term capital gains (property held for one year or less is) the tax rate is 12% and for long term capital gain (property held more than one year) the tax rate is 5.2%. These rates are subject to change!
Again, the best thing you can do when selling your home is consult with your attorney, your accountant, and your real estate agent to get up to date information and guidance.

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Trevor combines a deep knowledge of the Greater Boston market with thoughtful representation and unparalleled service to ensure a smooth, joyful transaction.

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