Important disclosure: We are not registered financial advisors with any of the government agencies. We are writing this blog post on any potential capital gains break for seniors based on the publicly available information. Please consult your financial advisor to discuss your individual financial situation.
Many people enter their retirement phase as they enter their senior years. Many do wonder if there are any exemptions for capital gain taxes that are available based on age. Prior to 1997, there was a capital gain exemption available for home sellers of age 55 or older. But that has since changed.
Before and After Taxpayer Relief Act of 1997
In 1997, a new tax law (H.R. 2014) was passed which really did not affect the seniors but all homeowners in general. Before that law was passed, seniors enjoyed what then was called over-55 home sale exemption. Under that rule, the seller who was 55 or older on the day of the sale was allowed to not pay capital gain taxes on up to $125,000 of the gains. After the house resolution was ratified into law, sellers of primary residences (who lived there for at least two years), regardless of their age were allowed to exclude up to $250k ($500k if married).
While seniors since that law was passed could now exclude more than what they were allowed before that, that applies to everyone regardless of their age. Although any senior can take advantage of this change in law, it isn’t available based on age factors.
At what age do you not pay capital gains?
Anyone who is required to pay capital gain taxes must do so regardless of their age. In simple terms, being of a certain age will not exempt anyone from capital gain tax regardless of their age. If you are wondering if senior citizens get a tax break on capital gains just based on age, the simple answer is unfortunately no. That does not mean a senior citizen cannot enjoy capital gain tax exclusion available to every taxpayer regardless of their age.
What can seniors do to lower their capital gain tax?
As we mentioned before, there are not any capital gain tax breaks for 62 and older based on their age. But being 62 or over will open a few doors that any senior citizen can strategize to reduce their tax bill.
Senior citizens could have different sources of income. It is possible they are holding long-term investments and are eligible for both social security withdrawals, IRA withdrawals and pension. Since capital gains are taxed based on taxable income instead of gross income, it is possible to have your capital gain tax lowered by carefully deciding how to manage your financials or withdraw your capital.
For example, a senior holding long term investment in a regular investment account can sell those assets while defering both IRA withdrawal and social security withdrawal. What that does is, it will lower the net taxable income for that year and at the same time allows their other sources to grow more. Depending on their tax brackets they could save money from one year to next!
To summarize, no there are no direct age based capital gain tax relief available for senior citizens but they are in different situation than a younger tax payer. Senior citizens have access to penalty free IRA withdrawals, social security payment and in many cases pensions. Based on their tax brackets, they can manage their financials accordingly which can save them money on capital gains. Every individual’s case will be different and thus we recommend talking to your financial advisor who can guide you the best! Thank you for reading and we encourage you to write some comments below with your thoughts!