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Why would After Tax Cash Flow increase for a couple filing jointly after they sell there...

Why would After Tax Cash Flow increase for a couple filing jointly after they sell there home but Effective Tax Rate decrease?

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Expert Solution

For a couple filing jointly their after tax cash flow will increase and their effective tax rate will decline after they sell their home.

This is because for a couple filing jointly any gains from the sale of primary home may be excluded up to $500,000 from their income, provided certain requirements are met. Usually gains from sale of house are subjected to taxation. However in case of a couple filing jointly the gains may be excluded up to a limit of $500,000. The only condition is that the property must have been owned for at least the prior two years and lived in at your primary residence—and did not receive a similar exemption from a property sale in the last two years.

Cash flow will increase as the couple will get cash proceeds from the sale of the house. On the other hand effective tax rate will decline as they were able to exclude up to $500,000 in gains from the sale of their house.

ekkarill92 answered 2 years ago
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