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Capital gains tax breaks on homes can cause issues

Many New Yorkers may already know that there are a lot of generous tax benefits associated with home ownership. In addition to being able to deduct interest from mortgages, for instance, the sale of a home can also be exempt from capital gains tax, at least up to a certain amount.

To review, the capital gains tax is a federal income tax that people ordinarily must pay when selling their property at a higher price than for what they purchased it.

A person can exempt up to $250,000 in capital gains off the sale of their home, and a married couple can combine their deductions to exempt $500,000. This is a generous break, since it means, for instance, that a married couple can net a $500,000 profit on their house tax free.

New York couples should be aware, however, that the Internal Revenue Service will pay close attention to those who claim this deduction because it is so valuable. Therefore, the IRS will enforce the requirements that people must meet in order to claim this deduction.

Tax controversies between a taxpayer and the IRS can develop, for instance, if there is some question as to whether the taxpayer really used the real estate as his or her primary residence for the minimum amount of time. This tax deduction does not apply to investment real estate.

Likewise, as with all questions involving capital gains, there may be issues related to how to figure the capital gains in the first place.

A question about the proper application of the capital gains tax to a home sale can leave a lot of money at stake. White Plains taxpayers who are in a roil with the IRS over such a matter should evaluate their legal options carefully.

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White Plains Office
81 Main Street
Suite 307
White Plains, New York 10601

Phone: 914-686-7171
Fax: 914-686-0168
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East Hampton Office
17 Beverly Road
Post Office Box 2888
East Hampton, New York 11937

Phone: 631-329-7171
Fax: 631-604-6140
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726 King Street
Post Office Box 488
Chappaqua, New York 10514

Phone: 914-238-7171
Fax: 914-238-4353
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