Tax season is approaching fast, and for those who sold a home this year, it’s important to start thinking about how this may impact your taxes. Below are several of the need-to-know facts about tax season for home sellers.
Under $250,000.? You may be able to exclude gains. Just because you profited on your home sale does not mean you have to pay taxes on it. In fact, if you’re eligible to exclude your gains, you don’t even need to note that you sold your home at all when you file.
To be eligible, you need to have made a profit of less than $500,000 on a joint return or $250,000 on an individual return. The tax exclusion for profits realized when selling a home only applies if the seller meets certain requirements. According to the IRS, a homeowner must own the home for at least two years and live in it as a primary residence for at least two years before the date of sale to qualify for the tax exemption. The two years of ownership and use can occur at any time within the five-year period before the sale. In addition, a seller cannot take the exclusion if he took the exclusion for the sale of a different residence within the previous two years.
You may not have to report your home sale at all. If you can exclude all of the gain–meaning it was under $500,000 on a joint return or $250,000 on a single–you probably don’t need to report the sale of your home on your tax return at all. Double check this with your accountant.
You can’t deduct your losses. While it’s great you can exclude financial gains, you can’t deduct financial losses, which is a bummer.
The more homes, the more complicated tax-time can be. Several complications can arise from owning more than one property, be it an investment or vacation home. The home you live in the majority of the time is considered your primary residence. This is important because it’s necessary for you to report any gains you may have made on your second home.
If you can’t exclude all of the gain because it was over the allotted amount, or you choose not to exclude it, then you will need to report the sale on your tax return. Keep an eye out for Form 1099-S, Proceeds From Real Estate Transactions.
If you sold your first home special rules may apply when you sell a home if you received the first-time homebuyer credit. Once again – check with your accountant to be sure.
As your trusted Realtor for life, I have a wealth of real estate and homeownership information that may be of help to you. Feel free to contact me any time to learn more about this important information, and be sure to forward this article to any friends or family that may be interested as well.
