Capital Gains Taxes Above 250k

[Seattle Matt]

So I'm about to sell my primary residence, if the profit is roughly 450,000, and I am eligible for $250,000 capital gains exemption, it means that I will be paying capital gains on the remaining $200,000.

My question is this: in this scenario does that mean the first $250,000 counts as income which puts me into the tax bracket for 20% capital gains? Which means anytime someone takes the $250,000 exemption, any remaining capital gains would always be 20%?

Am I missing something here?

[Ryan Lane]

Hi, Matt! Just to clarify, the gain on your property is the selling price of the home minus your cost basis and selling costs. 

In a simple scenario, let's say you had bought your house for $200,000 and incurred no selling costs. You sold the home for $650,000. Under this scenario you'd have a gain of $450,000 ($650k - $200k). I wanted to clarify that because some believe the whole selling price is the gain.

Continuing with this example, you would then subtract the $250k exclusion (or $500k if you're married) from your $450 gain. Leaving you with a $200k capital gain. This $200k is ultimately what flows through to your page 1/2 of your 1040. It flows through via Schedule D as this is capital gain. This whole calculation is completed on Form 8949 and your Schedule D.

Hope this helps!