How to Reduce Capital Gains Tax When Selling Your Kaua‘i Home
If you’re thinking about selling your Kaua‘i home, it’s important to understand how capital gains tax could affect your profits—and what you can do to reduce it. Here are four key strategies that could help you minimize your tax liability:
1. Qualify for the Home Sale Exemption
You may be able to exclude up to $250,000 (single filers) or $500,000 (married filing jointly) in capital gains if the home was your primary residence for at least two of the past five years.
Even if you don’t meet the full criteria, you might still qualify for a partial exclusion due to:
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A job relocation
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Health-related moves
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Unforeseen circumstances (e.g., divorce or a natural disaster)
2. Include the Purchase Price in Your Basis
Your “basis” is what you originally paid for the home, plus qualified costs. This number is subtracted from your selling price to determine your gain.
3. Deduct Eligible Closing Costs
Certain fees paid when buying or selling can be added to your basis and help lower your taxable gain:
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Legal and recording fees
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Title insurance
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Transfer taxes
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Utility connection fees
Note: Mortgage fees, insurance, and pre-closing occupancy costs don’t qualify.
4. Deduct Major Improvements
Improvements that increase the value or extend the life of the home can also be added to your basis. These may include:
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Room additions, lanais, or garages
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New roofing or siding
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Kitchen or bathroom renovations
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System upgrades (plumbing, electrical, AC)
Routine maintenance like painting or fixing leaks does not qualify.
Example
Let’s say you:
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Bought your Kaua‘i home for $300,000
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Spent $50,000 on renovations
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Had $10,000 in eligible closing costs
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Sold for $600,000
Your adjusted basis of the home would be $360,000 ($300,000 original cost of home + $50,000 reno costs + $10,000 closing costs), so your capital gain is $240,000 ($600,000 sales price – $360,00 adjusted basis of home) —and it could be entirely tax-free if you qualify for the home sale exemption.
Disclosure
This blog post is for informational purposes only and is not intended as tax or financial advice. Please consult with a CPA or licensed tax advisor to evaluate how capital gains rules apply to your individual situation.
📞 Have Questions About Selling?
If you’re thinking about selling your Kaua‘i property and want to explore your options—reach out to us anytime. We can connect you with a trusted tax advisor and help guide you through the process.
Contact Team Mira
📧 TeamMira@KauaiPropertySearch.com
📞 808-639-2263 (Tim Mira, RB) or 808-212-2899 (Nagél Mira, RS) Corcoran Pacific Properties
