Selling your home can be stressful enough without a large tax bill. In many cases, if you make a profit on the sale of your home, you will end up having to pay the IRS on your capital gains. However, there are a few ways to reduce your tax burden when you sell your home.
It’s important to understand all of the rules and provisions that accompany the sale of your home. If you will stand to profit, you will be gaining what is considered an income and should be reported to the IRS. Before your sale, it’s a good idea to talk to your tax specialist about any possible payments or exemptions for which you may qualify.
Many ask the question, “do you pay taxes when you sell a house?” However, most homeowners aren’t clear on the tax implications if they make a profit on their sales. Let’s look at a few tax tips that could apply when you sell your home.
Certain circumstances could exempt you from having to pay extra taxes following the sale of your home. If you qualify, you could be saved from including up to $250,000 of capital gains. For married couples, you can double that amount. To qualify you must:
- Have owned the home for the previous two years
- Must not have excluded a gain from the sale of a home in the previous two years before you took ownership of your current home
- You must live on the property as a primary residence for a minimum of two years prior to the sale date.
You can also gain an exemption from paying capital taxes on the sale of your home if you choose to sign a form stating that you will not have a profit following your sale. In this case, your agent will not be permitted to submit the standard Form 1099-S Proceeds From Real Estate Transactions which reports your transaction to the IRS.
If you are not going to make any money on the sale of your home, it’s considered a personal loss, and not included in your investment-related taxes. You are not permitted to take any deductions for a personal loss resulting from a deficit on the sale of your home.
Long Term Capital Gains
To qualify for a long-term capital gain tax rate, you must have owned your home for a minimum of one year. Long-term tax rates tend to be lower than normal bracketed rates and can save you money on your overall taxation amount.
It’s important to note that if you received a First-Time Homebuyers credit when you bought your home, you might have to pay that amount back if you make money on the sale of your home. If you purchased your home in 2008, you would generally have to pay back any remaining balance on that credit. For homes purchased in 2009 and 2010 and stopped residing in the home in less than 36 months, you will likely need to repay your credit balance.
The taxation issues surrounding the sale of your home can be complex. If you are uncertain about whether you will owe any taxes after you sell, it’s in your best interest to talk to a tax specialist.
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