Current tax law does not allow you to take a capital gains tax break based on age. In the past, the IRS allowed people over the age of 55 a tax exemption for home sales. However, this exclusion was closed in 1997 in favor of the expanded exemption for all homeowners. Beyond this, only retirement accounts allow for tax breaks related to age. Consider working with a financial advisor to develop a tax strategy for your financial plan.
What Are Capital Gains Taxes?
Capital gains are the profit that you make by selling an investment asset. When you buy an investment asset, the original price that you pay for it is known as the asset’s tax basis. When you sell that asset, you compare its sale price to its tax basis. If you made money, this is known as “capital gains.” If you lost money, this is known as “capital losses.”
Unlike ordinary income, which is money that you earn through work or by selling the product of your work, capital gains are subject to their own set of taxes. (Ordinary income is taxed at income tax rates.)
In 2023, capital gains on assets that are held over one year are taxed at the following brackets:
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 0% | $0 – $44,625 | $0 – $89,250 | $0 – $44,625 | $0 – $59,750 |
| 15% | $44,626 – $492,300 | $89,251 – $553,850 | $44,625 – $276,900 | $59,751 – $523,050 |
| 20% | $492,300+ | $553,850+ | $276,900+ | $523,050+ |
If you sell an asset after holding it less than a year, your capital gains will be taxed as ordinary income. For reference, the table below breaks down the income tax rates for tax year 2023:
| Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
| 10% | $0 – $11,000 | $0 – $22,000 | $0 – $11,000 | $0 – $15,700 |
| 12% | $11,001– $44,725 | $22,001– $89,450 | $11,001– $44,725 | $15,701– $59,850 |
| 22% | $44,726– $95,375 | $89,451– $190,750 | $44,726– $95,375 | $59,851– $95,350 |
| 24% | $95,376– $182,100 | $190,751– $364,200 | $95,376– $182,100 | $95,351– $182,100 |
| 32% | $182,101– $231,250 | $364,201– $462,500 | $182,101– $231,250 | $182,101– $231,250 |
| 35% | $231,251– $578,125 | $462,501– $693,750 | $231,251– $346,875 | $231,251– $578,100 |
| 37% | $578,125+ | $693,750+ | $346,875+ | $578,100+ |
The capital gains tax rate applies only to investment-based income. If you have a mix of earned income and investment income, you must calculate each set of income based on its relevant tax bracket. If you have both capital gains and capital losses in a single tax year, you may deduct your losses from your gains when you calculate your taxes.
Capital Gains Taxes and Seniors
Most retirees make their income from two sources: Social Security payments and retirement accounts. Retirement account income is almost entirely based on capital gains, as you sell the assets from your 401(k), IRA or other portfolios. In some cases, retirees supplement this income by selling their home to generate a significant amount of one-time income.This creates two general tax issues for seniors in the context of capital gains:
Retirement Accounts
The IRS encourages saving for retirement by using what is known as tax-advantaged accounts; the agency allows different tax deductions for qualifying retirement accounts.
Most retirement accounts are front-end tax-advantaged, meaning that the IRS allows you to deduct money that you invest in these accounts from your income taxes during the year in which you make that investment. To put it another way, you pay no taxes on the money you invest in these accounts. The most common forms of front-end retirement accounts are 401(k)s and IRAs.
A small number of retirement accounts are back-end tax-advantaged. In this case, you invest in the account with money on which you’ve already paid taxes. When you withdraw money from the account later in life, you pay no additional taxes. The most common forms of back-end retirement accounts are Roth IRAs.
Net Unrealized Appreciation
Most 401k withdrawals are subject to ordinary income taxes – except in the case of net unrealized appreciation (NUA). That’s thedifference in value between theaverage cost basisof company shares you own and the actual current market value of those shares.
Normally, when you want to take a distribution from a 401(k) plan that includes shares of company stock, you’d have a few options: rolling the entire distribution over to an IRA; rolling it over to a new 401(k) plan if you’re changing employers; or separating company stock out into a taxable brokerage account and rolling the remaining account balance over to an IRA or new 401(k).
NUA can be used if you choose the third option. If you’re transferring shares of company stock to ataxable account, then NUA lets you pay ordinary income tax only on the cost basis of the stock. If you decide to sell the stock at some point, you’d benefit from paying the lowerlong-term capital gains tax rate, which maxes out at 20%.
Rolling shares of company stock into a new 401(k) or IRA wouldn’t allow you to get the full benefit of NUA. Instead, you’d pay ordinary income tax rates on any distributions you take, which currently have an upper limit of 37%. While separating shares of company stock from the rest of your retirement account investments adds a step to the distribution process, it can be well worth it when it’s time to pay the IRS.
All Other Circ*mstances
Currently, there are no other age-related exemptions in the tax code.
In the late 20th century, the IRS allowed people over the age of 55 to take a special exemption on capital gains taxes when they sold a home. This lets homeowners exempt up to $125,000 worth of profit from the sale of their primary residence from their capital gains taxes. The purpose was to help households either in or prepare for retirement.
In 1997, Congress amended the tax code to create the standard exclusion that applies today. Under current law, households can exempt from their capital gains taxes the first $250,000 Single/$500,000 Married profits from the sale of a primary residence. In doing so it also repealed the existing exemption for households 55 and older.
Unfortunately for retirees, this was the only age-based exemption in the tax code. While retirement accounts have tax advantages, and you can adjust the balance of your retirement withdrawals relative to Social Security payments to minimize your applicable tax rates, there are no specific exemptions for seniors.
The Bottom Line
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 a back-end tax-advantaged retirement account like a Roth IRA which allows you to withdraw money without paying taxes. However, there are a number of strategies you can employ to minimize your capital gains taxes.
Tips on Tax Exemptions
- Taxes can be tremendously complicated. A financial advisor can help clear up confusion and give expert guidance as you look for deductions, credits and exemptions.Finding a financial advisor doesn’t have to be hard. SmartAsset’s free toolmatches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals,get started now.
- Use SmartAsset’s income tax calculator to get a quick estimate of how much you will owe the federal government.
Photo credit: ©iStock.com/Tinpixels, ©iStock.com/tuan_azizi, ©iStock.com/EmirMemedovski
Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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 a back-end tax-advantaged retirement account like a Roth IRA which allows you to withdraw money without paying taxes.
Who qualifies for lifetime capital gains exemption? ›
You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale.
Is there a one time exemption on capital gains? ›
If you are single, you will pay no capital gains tax on the first $250,000 of profit (excess over cost basis). Married couples enjoy a $500,000 exemption.2 However, there are some restrictions.
How do I avoid capital gains in retirement? ›
When you buy and sell investment securities inside of tax-deferred retirement plans like IRAs and 401(k) plans, no capital gains tax liability is triggered. Gains aren't taxed until you begin withdrawing funds in retirement, at which time you may be in a lower tax bracket than you are now.
At what age is Social Security no longer taxed? ›
Social Security benefits may or may not be taxed after 62, depending in large part on other income earned. Those only receiving Social Security benefits do not have to pay federal income taxes.
Who are exempt from long-term capital gains tax? ›
Exemptions on Long-Term Capital Gains Tax
Residential Indians of 80 years of age or above will be exempted if their Annual Income is below Rs. 5,00,000. Residential Indians between 60 to 80 years of age will be exempted from long-term capital gains tax in 2021 if they earn Rs. 3,00,000 per annum.
Do I have to pay capital gains tax if I am retired? ›
Capital Gains Taxes and Retirement Accounts
The IRS considers retirement accounts assets, but the most common types of retirement accounts don't incur capital gains taxes. Withdrawals from IRA and 401(k) accounts get taxed at your ordinary income tax level, not as capital gains.
What is the 1 year rule for capital gains? ›
Short-Term Capital Gains Tax Rates
Short-term capital gains are taxed as ordinary income. Any income that you receive from investments that you held for one year or less must be included in your taxable income for that year.
How do I avoid capital gains tax on the sale of my home? ›
How to avoid capital gains tax on real estate
- Live in the house for at least two years. The two years don't need to be consecutive, but house-flippers should beware. ...
- See whether you qualify for an exception. ...
- Keep the receipts for your home improvements.
How Long Do I Have to Buy Another House to Avoid Capital Gains? You might be able to defer capital gains by buying another home. As long as you sell your first investment property and apply your profits to the purchase of a new investment property within 180 days, you can defer taxes.
For the 2023 tax season, the 0% rate on long-term capital gains – any asset held for longer than a year – can be applied to taxable income of $41,675 or less for single filers and $83,350 or less for married couples filing jointly.
Should retirees reinvest capital gains? ›
Dividend reinvestment can be a lucrative option for retirees as long as they have other sources of short-term income. In fact, dividend reinvestment is one of the easiest ways to grow your portfolio, even after your earning years are behind you. However, it isn't the best strategy for everyone.
Do you have to pay taxes after 80 years old? ›
There is no age at which you no longer have to submit a tax return and most senior citizens do need to file taxes every year. However if Social Security is your only form of income then it is not taxable. In the case of a married couple who file jointly, this must be true of both spouses.
How do I get the $16728 Social Security bonus? ›
To acquire the full amount, you need to maximize your working life and begin collecting your check until age 70. Another way to maximize your check is by asking for a raise every two or three years. Moving companies throughout your career is another way to prove your worth, and generate more money.
What is the Social Security 5 year rule? ›
You must have worked and paid Social Security taxes in five of the last 10 years. • If you also get a pension from a job where you didn't pay Social Security taxes (e.g., a civil service or teacher's pension), your Social Security benefit might be reduced.
Do 70 year olds pay taxes? ›
The IRS typically requires you to file a tax return when your gross income exceeds the standard deduction for your filing status. These filing rules still apply to senior citizens who are living on Social Security benefits.
What state has no long term capital gains tax? ›
States With No Capital Gains Tax
A little more than a handful of states have no capital gains tax. Those include Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming.
What is the IRS rule for long term capital gains? ›
If you hold the asset for more than one year, your capital gain or loss is long-term. If you hold the asset one year or less, your capital gain or loss is short-term. To figure the holding period, begin counting on the day after you received the property and include the day you disposed of the property.
Do long term capital gains count against income? ›
Capital gains and losses are classified as long term if the asset was held for more than one year, and short term if held for a year or less. Short-term capital gains are taxed as ordinary income at rates up to 37 percent; long-term gains are taxed at lower rates, up 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 moved out of their PPOR and then rented it out.
Capital gains tax rate – 2022 thresholds
| Rate | Single | Married Filing Jointly |
|---|
| 0% | Up to $41,675 | Up to $83,350 |
| 15% | $41,675 to $459,750 | $83,350 to $517,200 |
| 20% | Over $459,750 | Over $517,200 |
Section 663(b) of the U.S. tax code allows fiduciaries of estates and complex trusts to elect into what is informally known as the “65-day election.” The 65-day election gives fiduciaries an additional 65 days after the end of the fiscal year to make beneficiary distributions and still be able to report them on their ...
What is the 30 day rule for capital gains tax? ›
If you wish to repurchase an investment that you have recently sold, over 30 days must elapse between the two transactions in order for you to utilise your CGT exemption or create a loss to offset against other gains realised within the same tax year.
Is capital gains added to your total income and puts you in higher tax bracket? ›
Long-term capital gains cannot push you into a higher income tax bracket. Only short-term capital gains can accomplish that, because those gains are taxed as ordinary income. So any short-term capital gains are added to your income for the year.
What is the capital gains tax rate for 2023? ›
Long-term capital gains tax rates for the 2023 tax year
In 2023, individual filers won't pay any capital gains tax if their total taxable income is $44,625 or less. The rate jumps to 15 percent on capital gains, if their income is $44,626 to $492,300. Above that income level the rate climbs to 20 percent.
What is capital gains tax on 200000? ›
= $
| Single Taxpayer | Married Filing Jointly | Capital Gain Tax Rate |
|---|
| $0 – $44,625 | $0 – $89,250 | 0% |
| $44,626 – $200,000 | $89,251 – $250,000 | 15% |
| $200,001 – $492,300 | $250,001 – $553,850 | 15% |
| $492,301+ | $553,851+ | 20% |
Jan 11, 2023
When you sell your home, federal tax law requires lenders or real estate agents to file a Form 1099-S, Proceeds from Real Estate Transactions, with the IRS and send you a copy if you do not meet IRS requirements for excluding the taxable gain from the sale on your income tax return.
What is the 2 out of 5 rule? ›
The 2-out-of-five-year rule states that you must have both owned and lived in your home for a minimum of two out of the last five years before the date of sale. However, these two years don't have to be consecutive, and you don't have to live there on the date of the sale.
Can I avoid capital gains by paying off mortgage? ›
Instead of selling your property and triggering a capital gains tax, you secure a larger loan, pay off the old mortgage, and take out the difference as cash. This system lets you A) convert an investment property's equity into cash, while B) avoiding capital gains taxes.
What is the 2 5 rule for capital gains? ›
When selling a primary residence property, capital gains from the sale can be deducted from the seller's owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale. That is the 2-out-of-5-years rule, in short.
The capital gains tax over 65 is a tax that applies to taxable capital gains realized by individuals over the age of 65. The tax rate is 0% for long-term capital gains on assets held for more than one year and 15% for short-term capital gains on assets held for less than one year.
Does selling a house count as income for Social Security? ›
As long as what you're receiving is a Social Security benefit and not Supplemental Security Income (SSI), then the fact that you sold your house won't have any effect on your benefits.
How long is the holding period for lifetime capital gains exemption? ›
To claim the LCGE, an individual (or a related person) generally needs to have held the shares that are being disposed of for two years, and the corporation in which the shares are held needs to be both a small business corporation (SBC)3 and a Canadian-controlled private corporation (CCPC),4,5 and needs to hold ...
Do you have to pay income tax after age 75? ›
There is no specific age when seniors are no longer required to file a tax return. If a senior's only source of income is social security, they can stop filing tax returns. For seniors with income in addition to social security, their taxable income determines whether they need to file a return.
How do I avoid capital gains on the sale of my house? ›
How to avoid capital gains tax on real estate
- Live in the house for at least two years. The two years don't need to be consecutive, but house-flippers should beware. ...
- See whether you qualify for an exception. ...
- Keep the receipts for your home improvements.
No. Income that comes from something other than work, such as pensions, annuities, investment income, interest, IRA and 401(k) distributions, and capital gains is not counted toward the earnings limit and will not affect your benefit. Join our fight to protect Social Security.
Will I lose my Social Security if I sell my house? ›
When she sells her home, will she lose her any of her benefits? A. She won't lose her Social Security, because eligibility does not depend upon her income or other resources, but her Supplemental Security Income (“SSI”) and Medi-Cal are at risk unless she plans ahead.
Do capital gains affect your Medicare premiums? ›
Yes, capital gains are part of the MAGI calculation. For many taxpayers, the MAGI is similar to the AGI (adjusted gross income), but it can be higher, depending on your circ*mstances.
Can I claim my 80 year old mother on my taxes? ›
The Internal Revenue Service (IRS) allows you to claim your elderly parent as a dependent on a tax return as long as no one else does. If you choose to claim an exemption for your parent, you must also ensure that you are not an eligible dependent to another taxpayer.
Is pension considered income? ›
Retirees' monthly retirement benefit payments are treated as ordinary income. Unless you specify the income tax withholding election you want applied to your benefit, federal and/or California state income tax will be withheld from your benefit payment as the default filing status defined in the tax form instructions.
States That Don't Tax Social Security
- Alaska.
- Florida.
- Nevada.
- New Hampshire.
- South Dakota.
- Tennessee.
- Texas.
- Washington.
