Capital gains tax exemption for seniors: what does it mean for you? (2024)

But what about retirement accounts and Social Security income? Are there still tax advantages to be had for seniors?

Capital gains tax over 65: does your age affect how much you pay?

Since the tax break for over 55s selling property was dropped in 1997, there is no capital gains tax exemption for seniors. This means right now, the law doesn’t allow for any exemptions based on your age.

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 Taxpayer Relief Act of 1997 increased the range of capital gains exemptions available to homeowners so that it was no longer about age. However, these exemptions only apply to investment properties and not to your main residence. Over the years, capital gains tax law has evolved to make things easier for homeowners in every age group.

Capital gains tax for seniors: what you need to know

The majority of retired people generate income from retirement accounts and Social Security payments.

A retirement account is based on capital gains because you sell assets through your 401(k), IRA, or similar portfolio. It’s also common for seniors to sell their homes and downsize, to create a lump sum.

Navigating your finances as you approach retirement can be challenging, especially when you don’t know what is the right choice to make.

Getting good financial advice means making life-changing decisions about your money becomes easier. Why not find your best financial advisor and get a free first consultation below

To get started, let's take a look at some of the most common questions around capital gains exemption for seniors.

Is there a one-time capital gains exemption for seniors?

While there is no capital gain tax exemption for seniors, there are legal ways to avoid paying tax in certain situations. These apply to all age groups, not just those over 65.

One of these is when selling your home.

If you are selling your primary residence and your tax filing is single, you can avoid paying capital gains tax on the first $250,000 of your profits. If your tax filing is married and filing jointing, your threshold for avoiding capital gain rises to $500,000.

However, this exemption is only available every two years.

Is my retirement account exempt from capital gains tax?

The IRS encourages you to save for retirement by allowing tax deductions on certain retirement accounts. These tend to be front-end tax-advantaged, so you pay no tax on the money you invest. 401(k)s and traditional IRAs are the most common form of these accounts.

Then there are back-end tax-advantaged retirement accounts, which do create a kind of capital gains exemption for retirees. Here you put money in that you have already paid tax on, and when you withdraw money later in life, you pay no more tax on it. The best-known back-end retirement accounts are Roth IRAs. Here, you’ve already paid your taxes up front in the past, so now you’re tax-free.

Capital gains and retirement accounts: rules and facts at a glance

Here are some things to remember when it comes to your retirement account and capital gains tax:

  • With front-end retirement accounts, the IRS allows you to deduct money that you’ve invested from your income taxes, during the year in which you made the investment.

  • The most common forms are 401(k)s and IRAs.

  • With back-end retirement accounts, you invest money you have already paid tax. When you withdraw the money, you pay no tax.

  • Back-end retirement accounts, such as the Roth IRA, are a kind of capital gains tax relief strategy for retirees.

  • There are not any other age-related exemptions in the tax code currently.

Speak to an expert financial advisor

The IRS allows no specific tax exemptions for seniors – either on income or capital gains.

As discussed, a back-end tax-advantaged retirement account like the Roth IRA is really as close as you can get.

Taxation is a notoriously complex field, and your best bet is to talk to a professional financial advisor, who can give you detailed personal guidance on any deductions, credits, or exemptions you could exploit.

Let Unbiased connect you with an SEC-regulated financial advisor in as little as 48 hours.

Capital gains tax exemption for seniors: what does it mean for you? (2024)

FAQs

Capital gains tax exemption for seniors: what does it mean for you? ›

This means right now, the law doesn't allow for any exemptions based on your age. 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'.

Do senior citizens get a tax break on capital gains? ›

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.

At what age do you no longer have to pay capital gains? ›

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.

What are the two rules of the exclusion on capital gains for homeowners? ›

Sale of your principal residence. We conform to the IRS rules and allow you to exclude, up to a certain amount, the gain you make on the sale of your home. You may take an exclusion if you owned and used the home for at least 2 out of 5 years. In addition, you may only have one home at a time.

How do you qualify for capital gains exemption? ›

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. The two years do not necessarily need to be consecutive.

What is the IRS deduction for seniors over 65? ›

Taxpayers who are 65 and Older or are Blind

For 2023, the additional standard deduction amounts for taxpayers who are 65 and older or blind are: $1,850 for Single or Head of Household (increase of $100) $1,500 for married taxpayers or Qualifying Surviving Spouse (increase of $100)

Is there a way to avoid capital gains tax on the selling of a house? ›

Yes. Home sales can be tax free as long as the condition of the sale meets certain criteria: 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.

Do people over 70 pay capital gains? ›

This means right now, the law doesn't allow for any exemptions based on your age. 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'.

How do I avoid capital gains tax at 65? ›

Utilize Tax-Advantaged Accounts: Tax-advantaged retirement accounts, such as 401(k)s, Charitable Remainder Trusts, or IRAs, can help seniors reduce their capital gains taxes. Money invested in these accounts grows tax-free, and withdrawals are not taxed until they are taken out in retirement.

Is there a once in a lifetime capital gains exemption? ›

The capital gains exclusion applies to your principal residence, and while you may only have one of those at a time, you may have more than one during your lifetime. There is no longer a one-time exemption—that was the old rule, but it changed in 1997.

What is a simple trick for avoiding capital gains tax on real estate investments? ›

A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.

Do I have to buy another house to avoid capital gains? ›

A: Yes, if you sell one investment property and then immediately buy another, you can avoid capital gains tax using the Section 121 exclusion.

How to avoid paying capital gains tax on inherited property? ›

Here are five ways to avoid paying capital gains tax on inherited property.
  1. Sell the inherited property quickly. ...
  2. Make the inherited property your primary residence. ...
  3. Rent the inherited property. ...
  4. Disclaim the inherited property. ...
  5. Deduct selling expenses from capital gains.

Do capital gains count as income? ›

Capital gains are generally included in taxable income, but in most cases, are taxed at a lower rate. A capital gain is realized when a capital asset is sold or exchanged at a price higher than its basis.

Do I have to pay capital gains tax immediately? ›

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.

What is the current federal capital gains tax rate? ›

Long-term capital gains tax is a tax applied to assets held for more than a year. The long-term capital gains tax rates are 0 percent, 15 percent and 20 percent, depending on your income. These rates are typically much lower than the ordinary income tax rate.

How much money can a 70 year old make without paying taxes? ›

For retirees 65 and older, here's when you can stop filing taxes: Single retirees who earn less than $14,250. Married retirees filing jointly, who earn less than $26,450 if one spouse is 65 or older or who earn less than $27,800 if both spouses are age 65 or older. Married retirees filing separately who earn less than ...

Who qualifies for 121 exclusion? ›

Qualifying for the exclusion

In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.

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