Capital Gains Taxes For DC Home Sellers

What do you owe in taxes after selling a home in the District of Columbia?

Capital gains and losses in the District of Columbia are treated basically the same as they are under federal law. All realized capital gains are taxed,  a deduction for net capital losses is allowed, and taxpayers can carry over unused capital losses to subsequent years. But that’s not all there is to it.

Capital Gains Taxes in DC

What is Capital Gains Tax?

A tax on profits earned from asset sales. This can include real estate, a business, stocks and/or many other types of investments.

Many homeowners are not required to pay capital gains taxes on the sale of their homes. The IRS excludes up to $250,000 (or $500,000 for married couples) of gain on a primary residence, which applies to a good number of U.S. homeowners. But in high-value, transient locations like Washington D.C., where house hacking is also common, it’s possible to owe capital gains tax.

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    Bullet Points

    • IRS rules for selling a primary residence are relatively simple
    • Rules trickier for investment properties + house hacks
    • Always consult a tax pro

    Capital Gains Basic Calculation

    Here’s the basic calculation in 3 steps:

    Review IRS Publication 523 ebooklet (be sure to check for current revisions). Determine your gain or loss from the sale of your primary home by using IRS Form 1099-S.  Place gross proceeds from the sale in Box 2, then subtract expenses related to the sale, such as agent commissions, staging, advertising, legal, etc. The adjusted total is your realized gains.
    Now reduce the realized gains by your home’s tax basis on the date of the sale (this is simply the home’s value for tax purposes). To do this, begin with the original cost of the property, plus commission, settlement fees and closing costs, updates or other improvements as allowed. (Ref. IRS Publicatons 551, 530 and 527)
    Now you have your net capital gain.

    Internal Revenue Service (IRS) rules on taxing capital gains include:

    • Length of time you’ve owned the asset (unrealized gains)
    • Cost of ownership + fees
    • Amount of realized gains
    • Income tax bracket
    • Marital status

    The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000.

    A capital gain rate of 15% applies if your taxable income is $80,000 or more but less than $441,450 for single; $496,600 for married filing jointly or qualifying widow(er); $469,050 for head of household, or $248,300 for married filing separately.

    However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.

    Capital Gains & House Hacking, Rental Properties

    The IRS Section 121 exclusion allows homeowners to exclude $250,000 of capital gains when it has served as their primary residence for two or more of the previous five years, but house hackers should note that the exclusion applies soley to the owner-occupied portion of the property, so additional calculations must be made.

    Rental properties have a specific set of rules outlined in IRS Publication 527.  Factor in how long the property was used as a rental versus a primary residence, and/or the portion of the home used for primary vs income residence.

    IRS now allows no exclusion for periods of nonqualified use. Filers may only claim the tax exclusion for periods of qualified use. What is qualified use vs. nonqualified use?Per IRS, it’s any period from January 1, 2009 when the property is not a primary residence.

    For depreciation on a house hack or rental property, refer to IRS Form 4562

    There’s also a tricky depreciation trap: Depreciation Recapture. Filers can’t exclude the portion of gain previously attributable to a depreciation deduction. This is known as depreciation recapture, which is specific to rental properties, and the amount previously taken as a depreciation deduction is taxed at a recapture rate of 25%.

    There are numerous publications and articles on these topics. Here are just a few you may find useful:

    1. IRS Rentals, Depreciation FAQ
    2. IRS Publication 946 How To Depreciate Property
    3. Rental Property and Capital Gains
    4. Rental Property Sale FAQ
    5. Kilpinger’s 2024 Capital Gains
    6. IRS Real Estate Income & Deductions

      Capital Gains Rates For 2024

      For the 2024 tax year, individual filers won’t pay any capital gains tax if total taxable income is $47,025 or less. The rate jumps to 15% on capital gains, if income is $47,026 to $518,900. Above that income level, the rate climbs to 20%.

      Short Term Capital Gains 2024

      Capital gains and losses are classified as long-term or short-term. In general:

      • If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term.
      • If you hold it one year or less, your capital gain or loss is short-term.

      For exceptions to this rule, such as property acquired by gift, property acquired from a decedent, or patent property, refer to Publication 544, Sales and Other Dispositions of Assets; for commodity futures, see Publication 550, Investment Income and Expenses; or for applicable partnership interests, see Publication 541, Partnerships.

      To determine how long you held the asset, you generally count from the day after the day you acquired the asset up to and including the day you disposed of the asset.

      The term “net short-term capital loss” means the excess of short-term capital losses (including any unused short-term capital losses carried over from previous years) over short-term capital gains for the year.

      Rate Single filers Married couples filing jointly Head of household
      10% Up to $11,600 Up to $23,200  Up to $16,550
      12% $11,600 – $47,150  $23,200 – $94,300 $16,550 – $63,100
      22% $47,150 – $100,525 $94,300 – $201,050 $63,100 – $100,500
      24% $100,525 – $191,950 $201,050 – $383,900 $100,500 – $191,950
      32% $191,950 – $243,725 $383,900 – $487,450 $191,950 – $243,700
      35% $243,725 – $609,350 $487,450 – $731,200 $243,700 – $609,350
      37% $609,350+ $731,200+ $609,350+

      Source: SmartAsset.com

      For the specific short-term capital gains tax rates in 2024, please check the latest IRS publications or consult with a tax professional.

      Long Term Capital Gains 2024

      Long-term capital gain applies to investments held for one year + one day and longer. The rate is based on income and tax bracket. The income thresholds for the long-term capital gains tax rates are adjusted each year for inflation.

      Sellingt a home in 2024? Long-term capital gains tax rates for the 2024 tax year:

      FILING STATUS 0% RATE 15% RATE 20% RATE
      Single Up to $47,025 $47,026 – $518,900 Over $518,900
      Married filing jointly Up to $94,050 $94,051 – $583,750 Over $583,750
      Married filing separately Up to $47,025 $47,026 – $291,850 Over $291,850
      Head of household Up to $63,000 $63,001 – $551,350 Over $551,350

      Source: IRS

      For the specific long-term capital gains tax rates in 2024, please check the latest IRS publications or consult with a tax professional.

      From The IRS

      Report most sales and other capital transactions and calculate capital gain or loss on Form 8949,  sales and other dispositions of capital assets, then summarize capital gains and deductible capital losses on Form 1040 Schedule D, Capital Gains and Losses.

      If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income.

      The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year.

      The term “net long-term capital gain” means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years.

      The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you’re in the 10% or 15% ordinary income tax brackets. However, a 20% tax rate on net capital gain applies to the extent that a taxpayer’s taxable income exceeds the thresholds set for the 39.6% ordinary tax rate ($415,050 for single; $466,950 for married filing jointly or qualifying widow(er); $441,000 for head of household, and $233,475 for married filing separately).

      If you have a taxable capital gain, you may be required to make estimated tax payments.

      For additional information, refer to Publication 505, Tax Withholding and Estimated Tax, Estimated Taxes, and Do You Have to Pay Estimated Tax?

      If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if married filing separately) or your total net loss shown on line 16 of the Form 1040, Schedule D (PDF).

      If your net capital loss is more than this limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover Worksheet found in Publication 550, Investment Income and Expenses, or in the Form 1040, Schedule D Instructions, to figure the amount you can carry forward.

      Taxpayers with significant investment income may be subject to the Net Investment Income Tax (NIIT), imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

      For information on Survivors, Executors, and Administrators, see Topic 559.

      Additional information on capital gains and losses is available in Publication 550 and Publication 544, Sales and Other Dispositions of Assets.

      If you sell your primary residence, refer to Topics 701 and 703, and [the afore-referenced] Publication 523, Selling Your Home.

      From A District of Columbia CPA

      Because capital gain taxes can involve complex calculations and knowledge of the rules of law pertaining to real estate taxation, seek advice from a tax professional expert in real estate taxation. This webpage by Kronzek, Fisher & Lopez, PLLC is a helpful resource for preliminary questions and planning. It lays out many of the scenarios common to the sale of real estate:

      Capital Gains Calculator

      District of Columbia 2024 Tax Rates

      District of Columbia Tax Rate Schedule: For tax year 2024 | No Change Posted

      Not over $10,000 4% of taxable income
      Over $10,000 but not over $40,000 $400 plus 6% of the excess over $10,000
      Over $40,000 but not over $60,000 $2,200 plus 6.5% of the excess over $40,000
      Over $60,000 but not over $250,000 $3,500 plus 8.5% of the excess over $60,000
      Over $250,000 but not over $500,000 $19,650 plus 9.25% of the excess over $250,000
      Over $500,000 but not over $1,000,000 $42,775 plus 9.75% of the excess over $500,000
      Over $1,000,000 $91,525 plus 10.75% of the excess over $1M

       

      Source: DC Tax Rate Table, published by the District of Columbia Office of Tax and Revenue. 

      Published District of Columbia income tax forms at the end of each calendar year include 2024 legislative changes to the DC tax rate or tax brackets. The information provided on this web page is for illustration purposes only. Check DC.gov for updates

      2024 Federal Tax Brackets

      Source: Forbes

      The 2024 tax year, and the return due in 2025, will continue with these seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your filing status and taxable income, including wages, will dictate the bracket you’re in:

      2024 Tax Brackets: Single Filer

      If taxable income is: The tax due is:
      Not over $11,600 10% of taxable income
      Over $11,600 but not over $47,150 $1,160 plus 12% of the excess over $11,600
      Over $47,150 but not over $100,525 $5,426 plus 22% of the excess over $47,150
      Over $100,525 but not over $191,950 $17,168.50 plus 24% of the excess over $100,525
      Over $191,950 but not over $243,725 $39,110.50 plus 32% of the excess over $191,150
      Over $243,725 but not over $609,350 $55,678.50 plus 35% of the excess over $243,725
      Over $609,350 $183,647.25 plus 37% of the excess over $609,350

       

      2024 Tax Brackets: Married Filing Separately

      If taxable income is: The tax due is:
      Not over $11,600 10% of taxable income
      Over $11,600 but not over $47,150 $1,160 plus 12% of the excess over $11,600
      Over $47,150 but not over $100,525 $5,426 plus 22% of the excess over $47,150
      Over $100,525 but not over $191,950 $17,168.50 plus 24% of the excess over $100,525
      Over $191,950 but not over $243,725 $39,110.50 plus 32% of the excess over $191,150
      Over $243,725 but not over $365,600 $55,678.50 plus 35% of the excess over $243,725
      Over $365,600 $98,334.75 plus 37% of the excess over $365,600

       

      2024 Tax Brackets: Head of Household

      If taxable income is: The tax due is:
      Not over $16,550 10% of taxable income
      Over $16,550 but not over $63,100 $1,655 plus 12% of the excess over $16,550
      Over $63,100 but not over $100,500 $7,241 plus 22% of the excess over $63,100
      Over $100,500 but not over $191,950 $15,469 plus 24% of the excess over $100,500
      Over $191,950 but not over $243,700 $37,417 plus 32% of the excess over $191,150
      Over $243,700 but not over $609,350 $53,977 plus 35% of the excess over $243,700
      Over $609,350 $181,954.50 plus 37% of the excess over $609,350

       

      2024 Tax Brackets: Married Filing Jointly

      If taxable income is: The tax due is:
      Not over $23,200 10% of taxable income
      Over $23,200 but not over $94,300 $2,320 plus 12% of the excess over $23,200
      Over $94,300 but not over $201,050 $10,852 plus 22% of the excess over $94,300
      Over $201,050 but not over $383,900 $34,337 plus 24% of the excess over $201,050
      Over $383,900 but not over $487,450 $78,221 plus 32% of the excess over $383,900
      Over $487,450 but not over $731,200 $111,357 plus 35% of the excess over $487,450
      Over $731,200 $196,669.50 plus 37% of the excess over $731,200

      IRS Highlights of changes in Revenue Procedure 2023-34

      The tax year 2024 adjustments described below generally apply to income tax returns filed in 2025. The tax items for tax year 2024 of greatest interest to most taxpayers include the following dollar amounts:

      • The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
      • Marginal rates: For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).The other rates are:35% for incomes over $243,725 ($487,450 for married couples filing jointly)
        32% for incomes over $191,950 ($383,900 for married couples filing jointly)
        24% for incomes over $100,525 ($201,050 for married couples filing jointly)
        22% for incomes over $47,150 ($94,300 for married couples filing jointly)
        12% for incomes over $11,600 ($23,200 for married couples filing jointly)The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
      • The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700). For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300).
      • The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase of from $7,430 for tax year 2023. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
      • For tax year 2024, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $315, an increase of $15 from the limit for 2023.
      • For the taxable years beginning in 2024, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.
      • For tax year 2024, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,800, an increase of $150 from tax year 2023, but not more than $4,150, an increase of $200 from tax year 2023. For self-only coverage, the maximum out-of-pocket expense amount is $5,550, an increase of $250 from 2023. For tax year 2024, for family coverage, the annual deductible is not less than $5,550, an increase of $200 from tax year 2023; however, the deductible cannot be more than $8,350, an increase of $450 versus the limit for tax year 2023. For family coverage, the out-of-pocket expense limit is $10,200 for tax year 2024, an increase of $550 from tax year 2023.
      • For tax year 2024, the foreign earned income exclusion is $126,500, increased from $120,000 for tax year 2023.
      • Estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.
      • The annual exclusion for gifts increases to $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023.
      • The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.

      Items unaffected by indexing

      By statute, certain items that were indexed for inflation in the past are currently not adjusted.

      • The personal exemption for tax year 2024 remains at 0, as it was for 2023. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
      • For 2024, as in 2023, 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
      • The modified adjusted gross income amount used by taxpayers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after Dec. 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

      Disclaimer

      Information provided on this page is intended as a helpful guide and posted for educational purposes only. It is not to be construed as not legal, tax or financial planning advice. We are real estate agents, not tax professionals. If you need help with a tax question, please consult a licensed CPA, tax advisor and/or the IRS.

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