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
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.
Do senior citizens get a tax break on capital gains? ›
Current tax law does not allow you to take a capital gains tax break based on age. In the past, the IRS granted people over the age of 55 a tax exemption for home sales. However, this exclusion was eliminated in 1997 in favor of the expanded exemption for all homeowners.
At what age do you no longer have to pay capital gains? ›
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.
Does Social Security count as income for capital gains tax? ›
Are all Social Security benefits taxable due to capital gains? Not necessarily. Depending on combined income, including capital gains, anywhere from 0% to 85% of your Social Security benefits can be taxable.
What are the two rules of the exclusion on capital gains for homeowners? ›
Is there a way to avoid capital gains tax on the selling of a house? You will avoid capital gains tax if your profit on the sale is less than $250,000 (for single filers) or $500,000 (if you're married and filing jointly), provided it has been your primary residence for at least two of the past five years.
How do I avoid capital gains tax at 65? ›
How Can People Over 65 Reduce Their Capital Gains Taxes?
- Invest in a Qualified Charitable Distribution (QCD): A QCD is made directly from an IRA to a qualified charity. ...
- Use the Capital Loss Carryover: If you have selling losses in the current year, you can use them to offset capital gains and reduce the tax burden.
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.
Do people over 70 pay capital gains? ›
The short and simple answer: Age doesn't exempt anyone from capital gains tax. This means even if you're like Mark, celebrating your 70s or beyond, Uncle Sam still expects his share from your capital gains.
Is there a once in a lifetime capital gains exemption? ›
The capital gains exclusion applies to your principal residence, and while you may only have one of those at a time, you may have more than one during your lifetime. There is no longer a one-time exemption—that was the old rule, but it changed in 1997.
How can senior citizens avoid taxes? ›
Seniors can earn more income than younger workers before submitting a tax return. People age 65 and older can earn a gross income of up to $15,700 before they are required to file a 2023 tax return, which is $1,850 more than younger workers.
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
How do I get zero capital gains tax? ›
A capital gains rate of 0% applies if your taxable income is less than or equal to:
- $44,625 for single and married filing separately;
- $89,250 for married filing jointly and qualifying surviving spouse; and.
- $59,750 for head of household.
Capital gains are profits from the sale of a capital asset, such as shares of stock, a business, a parcel of land, or a work of art. Capital gains are generally included in taxable income, but in most cases, are taxed at a lower rate.
What is a simple trick for avoiding capital gains tax on real estate investments? ›
You can avoid paying this tax by using the 1031 deferred exchange or tax harvesting. Alternatively, you can convert your rental property to a primary residence or invest through a retirement account. Don't forget to insure your property with Steadily to avoid making losses after investing in real estate.
Does selling a house count as income for Social Security? ›
Income limitations: Selling your home does not directly impact your eligibility for Social Security benefits. However, if you earn income from the sale, it could potentially affect the taxation of your benefits or eligibility for certain assistance programs.
Do I have to buy another house to avoid capital gains? ›
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.
What income level avoids capital gains tax? ›
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.
How do I avoid capital gains on my taxes? ›
Minimizing capital gains taxes
- Hold onto taxable assets for the long term. ...
- 2. Make investments within tax-deferred retirement plans. ...
- Utilize tax-loss harvesting. ...
- Donate appreciated investments to charity.
