Are you thinking that if you sell your house and buy a more expensive one within two years you won’t have to pay tax on the gain? Or that there’s a one-time exclusion so senior citizens don’t have to buy another house? Those are actually parts of an old law that was changed in 1997, but people still ask us about it all the time. Here are ten facts from the tax code to keep in mind if you sell your home this year.
How do you know if you have a gain on the sale of your house? First, take the price you sold it for. Then subtract the amount you paid for it, the amount you paid the Realtor and other closing costs, and any other money you spent to make improvements on the house (like a new room). The amount that’s left is your gain. If you come up with a negative number, you have a loss.
1. If you have a capital gain on the sale of your home, you may be able to exclude your gain from tax. This rule may apply if you owned and used it as your main home for at least two out of the five years before the date of sale.
2. There are exceptions to the ownership and use rules. Some exceptions apply to persons with a disability. Some apply to certain members of the military and certain government and Peace Corps workers. A medical condition that requires you to move may be an exception.
3. The most gain you can exclude is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
4. If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
5. You must report the sale on your tax return if you can’t exclude all or part of the gain. And you must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions.
6. Generally, you can exclude the gain from the sale of your main home only once every two years.
7. If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
8. If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale.
9. If you sell your main home at a loss, you can’t deduct it.
10. After you sell your home and move, be sure to give your new address to the IRS. You can send the IRS a completed Form 8822, Change of Address, to do this.
Questions? Call us! We would rather talk to you about the tax consequences before you make any decisions, so you can have all the facts available.