HUNTSVILLE, Ala. (WAFF) – Baby boomers represent the largest group of buyers and sellers in the U.S. housing market as of the end of April 2025, according to the National Association of Realtors®.
Marshall Clay, a financial expert from The Welch Group, said homeowners who have owned their properties for extended periods face significant capital gains tax implications when selling.
“Baby boomers are back in the game, so to speak, as far as the housing market,” Clay said. “For a lot of folks, particularly folks that have owned their house for a really long period of time, as they’re going into that selling dynamic, they’re coming across some pretty significant capital gains that they have to deal with.”
Tax exclusions available for primary residences
The IRS provides substantial tax relief for primary residence owners. Single filers receive a $250,000 capital gains tax exclusion when selling their homes, while married couples filing jointly can exclude up to $500,000.
Capital gains are calculated by subtracting the cost basis from the sale price. The cost basis includes the original purchase price plus any meaningful improvements made to the property.
Clay provided an example of a couple who bought a house for $200,000 years ago and now sell it for $700,000. As married filers, they could complete the sale with no tax implications due to the $500,000 exclusion.
Qualification requirements
To qualify for the exclusion, homeowners must have owned and lived in the house as their primary residence for two out of the last five years. The two years do not need to be consecutive.
The exclusion can only be used once every two years.
Importance of documentation
Clay emphasized the importance of maintaining records for home improvements such as kitchen remodels, bathroom renovations, deck additions or swimming pool installations.
“You definitely want to have those items, those documents to support it just in case you get audited,” Clay said. “The IRS is going to want to know what meaningful improvements have you made to that home to justify the fact that cost basis is maybe larger than what you think.”
Clay warned that sellers who fail to understand tax implications could face unexpected bills of thousands of dollars when filing their taxes.
Click Here to Subscribe on YouTube: Watch the latest WAFF 48 news, sports & weather videos on our YouTube channel!
Copyright 2025 WAFF. All rights reserved.
