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.
FAQs
The IRS allows no specific tax exemptions for senior citizens, either when it comes to income or capital gains. The closest you can come is contributing to a Roth IRA or Roth 401(k) with after-tax dollars, allowing you to withdraw money without paying taxes.
Does the IRS have a capital gains exemption for seniors? ›
While there is no capital gain tax exemption for seniors, there are legal ways to avoid paying taxes in certain situations. These apply to all age groups, not just those over 65.
How to avoid capital gains tax over 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.
At what age do you no longer have to pay capital gains? ›
Capital Gains Tax for People Over 65. 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.
How does the one time capital gains exemption work? ›
You can sell your primary residence and avoid paying capital gains taxes on the first $250,000 of your profits if your tax-filing status is single, and up to $500,000 if married and filing jointly. The exemption is only available once every two years. But it can, in effect, render the capital gains tax moot.
What is a simple trick for avoiding capital gains tax on real estate investments? ›
Use a 1031 exchange for real estate
Internal Revenue Code section 1031 provides a way to defer the capital gains tax on the profit you make on the sale of a rental property by rolling the proceeds of the sale into a new property.
What is the new standard deduction for seniors over 65? ›
For the 2022 tax year, seniors filing single or married filing separately get a standard deduction of $14,700. For those who are married and filing jointly, the standard deduction for 65 and older is $25,900.
At what income do you not pay capital gains? ›
For the 2024 tax year, individual filers won't pay any capital gains tax if their total taxable income is $47,025 or less. The rate jumps to 15 percent on capital gains, if their income is $47,026 to $518,900. Above that income level the rate climbs to 20 percent.
What is the 6 year rule for capital gains tax? ›
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they move out of their PPOR and then rent it out. There are some qualifying conditions for leaving your principal place of residence.
What is exempt from capital gains? ›
If you sell or give away personal belongings ('chattels') then there will be no CGT if your share of the proceeds or value when given away is less than £6,000. See Selling shares and other assets for more information. Please note, however, that company shares are not usually exempt from CGT.
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. The seller must not have sold a home in the last two years and claimed the capital gains tax exclusion.
Do I have to buy another house to avoid capital gains? ›
You can avoid capital gains tax when you sell your primary residence by buying another house and using the 121 home sale exclusion. In addition, the 1031 like-kind exchange allows investors to defer taxes when they reinvest the proceeds from the sale of an investment property into another investment property.
Does selling a house count as income? ›
Taxpayers who don't qualify to exclude all of the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return.
Does an 80 year old have to pay capital gains tax? ›
The IRS allows no specific tax exemptions for senior citizens, either when it comes to income or capital gains. The closest you can come is contributing to a Roth IRA or Roth 401(k) with after-tax dollars, allowing you to withdraw money without paying taxes.
How do I avoid capital gains on sale of primary residence? ›
You can avoid capital gains tax when you sell your primary residence by buying another house and using the 121 home sale exclusion. In addition, the 1031 like-kind exchange allows investors to defer taxes when they reinvest the proceeds from the sale of an investment property into another investment property.
What is the retirement exemption for capital gains? ›
What is the CGT Retirement Exemption? The CGT Retirement Exemption allows capital gains of up to $500,000 resulting from the sale of an active asset to be exempt for capital gains tax purposes. In order to apply the CGT Retirement Exemption, the asset sold needs to meet the definition of an active asset.
Do you have to pay capital gains when you inherit a house? ›
You do not automatically pay taxes on any property that you inherit. If you sell, you owe capital gains taxes only on any gains that the asset made since you inherited it. You may want to talk to a professional advisor to make sure you plan your finances out correctly with the capital gains tax in mind.
