Homes for Sale & Taxes-What a Seller Needs to Know
The new Internal Revenue Service rules are more advantageous to sellers of homes for sale. You can no longer roll a gain into the new home; however, not all gain is taxable as in the past.
Now, homes for sale have the first $250,000 of profit exempt from any taxes, if you are the owner and filing single status. If you file jointly with your spouse, your homes for sale gain is tax exempt up to $500,000 - this is a half-million dollars, tax-free profit. This means that if you purchased a home for $200,000, you could sell it for $450,000 as a single or $700,000 as a couple and incur no taxes on the profit.
There is, however, a time and resident test that must be met in order to receive this tax exemption for your homes for sale profit. You must have lived in the home for two out of the past five years in order to qualify for the tax exemption.
What If You Don't Meet the Time & Resident Test So, does that mean that if you do not meet the time and resident test you then owe taxes on all of the gain? Not necessarily.
The tax code allows for several specific exemptions to the time and resident test, when you must move due to certain qualifying events. Here are a few of those events:
• You must move due to the health of one of the residents in the home (your immediate family) or the health of a relative who is in your care.
• A death in your immediate family that incurs the move, such as a breadwinner dies and the spouse cannot afford to keep the home.
• Divorce that forces a move.
• The unemployment of a breadwinner (must be qualified for and receiving unemployment compensation) and cannot afford to keep the home.
• A new job that is 50 miles further away from the home than the current job. Otherwise, if you drove 20 miles to your current job, then the new job must be at least 70 miles from the home to qualify for an exemption.
• Your home was damaged from a natural or manmade disaster, and you were forced to sell it.
• Perhaps an act of war or terrorism has caused the move.
• Even the birth of twins, triplets and so on, made the current home for sale too small and impractical to keep.
IRS publication 523, "Selling Your Home", covers many other unforeseen events that would qualify you for an exemption.
When you do not meet the time and resident test but qualify under one of the unforeseen event exemptions, you receive only a partial exemption for the gain on your home for sale. You will be taxed on a pro-rated amount of the gain, based upon how long you actually resided in the home.
If you lived there less than a year, then the profit from your home for sale is considered to be a short-term gain. This means, on the pro-rated amount you owe taxes, you will pay the same tax rate as you do on your 1040 income tax form.
If you have lived more than one year but less than two in your home for sale, the profit is considered to be a long-term gain. Rather than paying the generally higher income tax rate, most people are taxed at 15 percent. So, if you have lived in the home for less than one year, it is to your advantage to remain there until you pass the one-year time mark - if at all possible.
The changes in the tax code for profit on homes for sale is much easier now to calculate and typically are more advantageous to the seller now, than in the past. Of course before making any home selling decisions or plans, consult a Certified Public Accountant or other tax professional.
Related Tags: real estate, san diego real estate, san diego, selling your home, homes for sale
John Harris is an expert researcher and writer on real estate topics such as economics, credit improvement tips, home selling advice and home buying preparations. For more on San Diego Homes for Sale visit http://www.twtrealestate.com
Your Article Search Directory : Find in ArticlesRecent articles in this category:
- Qualifying Equals More Sales and More Income
In my experience in the new home sales industry and the opinion of the top producers across virtuall - Questions From Home Sellers
Home sellers have been contacting me about selling their homes with the question: "Should - Top 10 Reasons You Can Sell More Real Estate With A Podcast
A lucrative career in real estate used to mean shaking a lot of hands and praying for favorable mark - How Important is a Real Estate Appraisal?
A real estate appraisal is necessary any time you buy or sell any kind of real estate. The purpose - Window Treatments Can Help Sell Your Home - Let a Home Stager Show You How
New window treatments can make a world of difference when selling your home. They can add value and - Sell Land Contract Agreements for Cash To Professional Note Buyers
You can sell land contract agreements to a professional note buyer for a lump sum of money. Many peo - How To Prepare For An Open House
To further maximize exposure, your Realtor may recommend you hold one or two types of open houses as - Selling With A Real Estate Representative
Selecting a RealtorFinding the right real estate representative takes some time and care. A good pla - Home Selling Tips - Tips On Selling Your Own Home And Preparing Your Home For Sale
Top Ways to Boost Your Homes ValueSelling your home is a major life event; buyers and agents will co - Selling Your Home - Exterior Ideas
When listing your home for sale, it must be in the best shape possible. This may mean spending some
Most viewed articles in this category:
- Great Curb Appeal: Your First Line Of Defense For Selling Your Home
Trying to sell your home without "Great Curb Appeal" is an uphill struggle. Without pristine curb a - Dependable Recumbent Bicycle Dealers
Recumbent bikes place the cyclist in a laid-back, easy chair riding or reclined posture. Unlike conv - Free Home Staging Tips that Make Your Home Sell Faster
A 2006 Chicago Tribune article cites a National Association of Realtors (NAR) study validating the i - Prospecting for Real Estate Clients is Not a Short-term Activity
Have you ever mailed a prospecting letter to 100 or even 500 homeowners in your neighborhood, waited - Putting Your Best Foot Forward When Selling Your Home
As the real estate market cools off, it is important to focus on the fundamentals if you want to sel - Home Loan Finances
You can take a loan from banks or lending companies. Banks and such companies have their set criteri - Selling Your Gilbert Home in a Tough Market
Selling Your Gilbert Home When No One Is Making An OfferThis may seem like a terrible time to have y - Real Estate Market for Sellers in 2007
For much of this decade, sellers have sat in the cat seat when it comes to the real estate market. A - Staging, Selling Your Home For More Money
In the middle-of-the-road housing market, homes are remaining for sale longer than they did about on - Trying to Sell a Home with Little or No Equity
Many homeowners are sweating finances these days. For a variety of reason they are in over the head