How To Legally Save Taxes On Up To $500,000

How do you legally avoid paying taxes on up to $500,000 on the sale of your home? Find out how!

The number one way that you can avoid paying taxes on up to $500,000 on the sale of your home is by utilizing this simple method. Before I cover that, I just want to remind you that I am not a CPA so please consult your CPA before doing any of these options and let's get after it right now.

If you are married, you can avoid paying taxes on up to $500,000 from the sale of your primary residence. If you're not married and you're single, then you can avoid paying taxes on up to $250,000. There's a little bit of a myth around this, a misunderstanding that I'm going to cover here in a second.

Let's just cover what some of the rules are around utilizing this simply a tax exemption that you can claim on your taxes when you go and sell your home. I did this myself when I sold home a number of years ago and cashed out that equity. It's really simple. You basically just have to have lived in your home as a primary residence for 2 years out of the last 5 years.

If you have done that, you can sell your home and take out that extra equity as tax free capital gain. If you are married and if you have $500,000 in equity that you are cashing out, then you avoid paying taxes. That might save you $150,000 simply by doing that, which is absolutely incredible.

There's a couple things to keep in mind:

#1. It has to be your primary residence for 2 out of the last 5 years. It cannot just be an investment property that you're then selling. It's your primary residence. It's really important too, to not kind of pretend like it's your primary residence sending mail there for 2 years then claiming that was your residence that will get you caught up in legal trouble. You really have to have lived there for 2 of the last 5 years.

#2. The other thing too, if you are widowed, you can also claim this exemption up to $500,000. However, you can only claim it if your spouse passed away in the last 2  years. If it's beyond that, unfortunately you're going to drop back down to that $250,000 mark.

If you are within that 2 year timeframe, having recently lost a spouse, I am super, super sorry for your loss. And you will have to make a decision if you want to keep the home for a longer period of time and then fall back into that $250,000 mark. Or if you want to go ahead and sell and claim that $500,000 exemption.

Here's the big myth that a lot of people think about when they hear about this exemption. A lot of people have heard about it, but they think, 'yeah, but I have to go reinvest it into another home'. That's actually not true at all. You can take that money and use it tax free for any purpose at all.

Whatever that is, if it's just living expenses, if it's buying another home, you can do that. If it's buying a boat or another car, investing in another business, perhaps. That's what I actually did. I sold a home, took the proceeds tax free and invested it into another business that I was starting up quite a number of years ago.

Do not think that you have to reinvest your proceeds into the purchase of another home. That gets confused frequently, really with what is called 1031 Exchange. And that is specifically for investment properties, rolling funds from one property into another and deferring taxes. But at the end of the day, you ultimately pay taxes on those.

This is a true tax free mechanism that you can simply claim on your taxes and you can use it for absolutely any purpose. There's another option out there. And I want to stress that you absolutely need to talk to your CPA. And it's an option that a lot of people are not that familiar with.

And it does take a lot of coordination and legal and tax planning in order to pull this off correctly. And this is called a Deferred Sales Trust. The deferred sales trust can actually help you defer taxes for anything over the sale of that $500,000 mark. If you made $600,000, you can take that a $100,000 and put it into a trust that then pays you out over a period of time that defers / reduces your taxes significantly.

And it can even be used on investment properties as well. Instead of using it to do a 1031 Exchange, you can use this trust system where you're paying yourself. Again, this is super important to talk to the legal team involved with this. I have recommendations, I can make to you for folks that help set this up.

And it does not work for everybody. It's very, very individual specific. The other thing too, it actually can, under the right scenarios, help you avoid paying taxes completely, not just deferring them.

If you are interested in that contact, please hit me up. I'd happy to refer that person, that team to you as well, but that is how you save up to $500,000. If you're married up to $250,000; if you are single and invested or spended on absolutely anything that you would like.

Curtis Chism, Realtor
858-281-2568 | Mobile
mailto:info@sandiegohomes.io
Chism Team | DRE #02105113
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