Capital Gains Tax for over 65s

3 mins readLast updated December 5, 2023by Rachel Carey

Since the tax break for over 55s selling property was dropped in 1997, there is on Capital Gains Tax exemption for seniors. So, perhaps it's time to fine-tune your investment strategy.

Capital gains are the profits you make by selling an investment asset – the difference between the price you originally paid and any increase that has accrued at the point of sale. But what about retirement accounts and Social Security income? Are there still tax advantages to be had for seniors?

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  • Right now, the law doesn’t allow for any exemptions from capital gains tax based on your age.

  • However, there are ways to reduce your capital gains tax liability when it comes to selling your home.

  • Some retirement accounts provide tax-advantages, which could offer some tax relief for seniors.   

  • Speaking to a financial advisor helps you navigate complex tax rules and make the most of your retirement savings.

Capital gain tax over 65: does your age affect how much you pay?

Right now, the law doesn’t allow for any exemptions from capital gains tax based on your age.

Whether you’re 65 or 95, seniors – irrespective of age – 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 speak to a financial advisor today and start making confident financial decisions.

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 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

  • 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.

Your main takeaway

The IRS allows no specific tax exemptions for seniors – either on income or capital gains. As we’ve 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.

Senior Content Writer

Rachel Carey

Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.

Need help with your Capital Gains Tax bill?

Find a financial advisor who can help you navigate complex tax rules