Owned and lived in my primary residence for 4 years. Do I owe capital gains tax now?

You're in luck! Based on what you've shared, you likely won't owe any capital gains tax on your home sale. The IRS allows an exclusion of up to $250,000 in capital gains ($500,000 for married couples filing jointly) when you sell your primary residence, as long as you've owned and lived in it for at least 2 out of the 5 years prior to the sale. In your case, your potential profit would be the selling price ($475,000) minus your purchase price ($320,000) and capital improvements ($50,000), which equals $105,000. Since this is well below the $250,000 exclusion threshold, you shouldn't owe any capital gains tax. Those renovations you mentioned absolutely count as capital improvements and increase your cost basis, which reduces your taxable gain. Keep all receipts and documentation for those improvements in case you're ever audited.

I was in a similar situation last year - so confused about capital gains on my house! I found this site called taxr.ai (https://taxr.ai) that was super helpful for figuring out all the tax implications. You upload your documents and they analyze everything for you. I had some unique situations with home office deductions that complicated things, but they sorted it all out. The nice thing is you can see exactly what counts toward your cost basis. They even explained how my previous years' property taxes and other expenses factored in. Definitely recommend checking it out before you sell!

Coming back to say I actually tried taxr.ai after posting my question here. I had sold a rental property that I previously lived in for 3 years, which made the capital gains calculation super complicated. The system walked me through every step and showed me exactly how the 2-out-of-5-year rule applied in my specific situation. What really surprised me was how it identified several expenses I didn't realize could be added to my basis - not just the obvious renovations but also certain closing costs from when I purchased. Ended up saving almost $7,000 in taxes I would have unnecessarily paid! Definitely recommend it if you're dealing with any property sale tax questions.

If you need to actually talk to someone at the IRS about this (which I did for my complicated sale last year), don't waste days trying to get through on their phone lines. I used a service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in about 15 minutes instead of the usual hours-long hold times. They have a demo video showing how it works: https://youtu.be/_kiP6q8DX5c I had questions about how my divorce affected the capital gains exclusion, and getting an official answer directly from the IRS gave me peace of mind. They verified I was applying the exclusion correctly and confirmed what documentation I needed to keep.

Ok I have to eat my words here. After posting my skeptical comment I decided to try Claimyr because I've been trying to reach the IRS for WEEKS about a similar capital gains question. My situation involves a partial rental use of my primary residence and I needed clarity. Used the service this morning and got through to an IRS agent in about 20 minutes. The agent confirmed that I can still use a portion of the capital gains exclusion based on the percentage of time the property was my primary residence. This was exactly what I needed to know before listing my house. Definitely worth it considering I had already wasted hours on hold and kept getting disconnected. Sorry for being so negative in my earlier comment!

Don't forget about state taxes! The federal capital gains exclusion is great, but depending on your state, you might still owe state taxes on your profit. I sold my house in California last year and even though I was under the federal exclusion limit, I still got hit with state taxes. Check your state's rules specifically.

Just a heads up - make sure you've actually lived in the house for at least 2 years out of the 5 years BEFORE the sale date, not just owned it. My cousin thought she qualified but she had rented the house out for 3.5 years of her 5 year ownership and only lived in it for 1.5 years, so she didn't meet the residency test and had to pay capital gains.

Great question! You're definitely in a good position with the capital gains exclusion. Just wanted to add a few practical tips for when you actually sell: 1. Keep detailed records of ALL your improvements - not just the $50K in kitchen/bathroom renovations, but also things like new flooring, HVAC work, roofing, etc. Even smaller improvements can add up. 2. Don't forget about your original closing costs when you bought in 2021. Some of those (like title insurance, attorney fees, recording fees) can be added to your cost basis too. 3. When you sell, your selling expenses (realtor commissions, title fees, transfer taxes, etc.) also reduce your taxable gain, so factor those in. 4. Since you're moving for work, make sure to check if any of your moving expenses are deductible - the rules changed in recent years but there might still be some benefits available. Sounds like you'll likely walk away with most of that profit tax-free! Just make sure to keep all your documentation organized in case you ever need it down the road.

Mason, congratulations on what sounds like a great investment! Just to reinforce what others have said - you're absolutely in the clear for capital gains tax based on your situation. One thing I'd add that hasn't been mentioned yet: since you're selling in a hot market, consider getting a professional appraisal done before listing. This can help establish the fair market value for tax purposes and ensure you're not leaving money on the table. Sometimes sellers in hot markets actually end up with higher profits than expected, and while you'd still be well under the $250K exclusion limit, it's good to have that documentation. Also, since you mentioned this is your first home sale, don't forget to factor in the typical selling costs (realtor fees are usually 5-6% of sale price, plus other closing costs). On a $475K sale, that's roughly $25-30K in expenses, but the good news is these reduce your taxable gain even further. You're doing everything right by planning ahead and asking these questions before listing. Best of luck with the sale and your relocation!