What is Capital Gain?

Once we have a closing on a property, the brokerage company is happy because they got paid commission money, but the seller has a tax problem. Whenever a person in this country buys an asset, sells it later on and makes profit money, then the government wants to tax us on that profit, which is what we call a capital gain. A capital gain is where you make profit on things like the sale of real estate, so if the seller buys a house, sells it later on down the road and makes profit money, then that is a capital gain or profit that is taxable. However, for owner occupied homes that we live in, we have an exclusion. The 1997 Tax Act says that on houses we live in, not investment properties, when we sell those properties, if we are single, if their profit does not exceed $250,000 then no taxes will be owed. The full amount of profit would be excluded. If persons are married, then the exclusion amount of profit for capital gains is $500,000. Keep in mind that in order to claim this exclusion on owner occupied properties, the property must have been the principal's personal residence for two of the past five years.