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.
Do senior citizens get a tax break on capital gains? ›
The IRS allows no specific tax exemptions for seniors on capital gains. As discussed, an after-tax advantaged retirement account, like the Roth IRA, is really as close as you can get.
At what age are you exempt from paying capital gains? ›
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 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.
How does prop 19 work for seniors? ›
Homeowners who are 55+ or severely disabled can transfer the property tax base of their existing home to another home anywhere in California, regardless of price, to be closer to family or medical care, downsize, or move to a home that better meets their needs without a property tax increase (with an adjustment upward ...
How to avoid taxes on capital gains? ›
9 Ways to Avoid Capital Gains Taxes on Stocks
- Invest for the Long Term. ...
- Contribute to Your Retirement Accounts. ...
- Pick Your Cost Basis. ...
- Lower Your Tax Bracket. ...
- Harvest Losses to Offset Gains. ...
- Move to a Tax-Friendly State. ...
- Donate Stock to Charity. ...
- Invest in an Opportunity Zone.
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.
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.
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.
How do you avoid capital gains when selling to family? ›
Married/RDP couples can exclude up to $500,000 if all of the following apply: Your gain from the sale was less than $500,000. You filed a joint return for the year of sale or exchange. Either spouse/RDP meets the 2-out-of-5-year ownership requirement.
Investment Transactions –– Gains from sales and trades of stocks, bonds, or certain commodities are usually reported to you on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or an equivalent statement.
What is the 6 year rule for capital gains tax? ›
CGT 6-Year Rule
Allows temporary renting of PPOR for up to 6 years while still claiming main residence exemption. – Each 6-year absence period is treated individually.- No limit on number of times you can use this exemption.- Property must have been your main residence before renting out.
What expenses can be claimed against capital gains tax? ›
Incidental acquisition costs
Estate agents's commission - where there is a property sale. Legal costs. Costs of transfer - e.g. stamp duty land tax.
What is the two year rule for Prop. 19? ›
The transfer may be within two years of sale of original primary residence. The sale price of this house becomes the full cash value* of the original primary residence. The replacement residence can be of any value, and and the transfer can be anywhere within the state; all counties are included.
What is the difference between Prop. 19 and Proposition 60? ›
Under Proposition 19, three transfers will be allowed for homeowners who are over age 55 or physically and permanently disabled, regardless of whether a property owner previously transferred a base year value under Propositions 60/90 and Proposition 110.
What is Prop. 19 for dummies? ›
Prop. 19 allows homeowners to purchase a replacement home of greater value than their original home and transfer their tax base with an adjustment to account for the value difference in cases of homes destroyed by wildfires or other natural disasters.
How do I get a tax break on capital gains? ›
An easy and impactful way to reduce your capital gains taxes is to use tax-advantaged accounts. Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes at all on the assets in the account.
What is the extra tax deduction for over 65? ›
If you are 65 or older and blind, the extra standard deduction for 2024 is $3,900 if you are single or filing as head of household. It's $3,100 per qualifying individual if you are married, filing jointly or separately.
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 lowers capital gains tax? ›
Long-term investing offers a significant advantage in minimizing capital gains taxes due to the favorable tax treatment for investments for longer durations. When investors hold assets for more than a year before selling, they qualify for long-term capital gains tax rates, typically lower than short-term rates.
