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Homes For Sale and Taxes What A Seller Needs To Know
n May of 1997, the tax
code governing profit from There is, however, a time and
the sale of a personal resident test that must be met in
residence was changed. In the order to receive this tax
past, any gain from a home for exemption for your homes for sale
sale could be taxed, unless profit. You must have lived in
rolled over into the purchase of the home for two out of the past
a new home. five years in order to qualify
for the tax exemption.
The new Internal Revenue Service
rules are more advantageous to What If You Don’t Meet the Time &
sellers of homes for sale. You Resident Test
can no longer roll a gain into
the new home; however, not all So, does that mean that if you do
gain is taxable as in the past. not meet the time and resident
test you then owe taxes on all of
Now, homes for sale have the the gain? Not necessarily.
first $250,000 of profit exempt
from any taxes, if you are the The tax code allows for several
owner and filing single status. specific exemptions to the time
If you file jointly with your and resident test, when you must
spouse, your homes for sale gain move due to certain qualifying
is tax exempt up to $500,000 — events. Here are a few of those
this is a half-million dollars, events:
tax-free profit. This means that
if you purchased a home for • You must move due to the health
$200,000, you could sell it for of one of the residents in the
$450,000 as a single or $700,000 home (your immediate family) or
as a couple and incur no taxes on the health of a relative who is
the profit. in your care.
• A death in your immediate • Even the birth of twins,
family that incurs the move, such triplets and so on, made the
as a breadwinner dies and the current home for sale too small
spouse cannot afford to keep the and impractical to keep.
home.
IRS publication 523, “Selling
• Divorce that forces a move. Your Home”, covers many other
unforeseen events that would
• The unemployment of a qualify you for an exemption.
breadwinner (must be qualified
for and receiving unemployment When you do not meet the time and
compensation) and cannot afford resident test but qualify under
to keep the home. one of the unforeseen event
exemptions, you receive only a
• A new job that is 50 miles partial exemption for the gain on
further away from the home than your home for sale. You will be
the current job. Otherwise, if taxed on a pro-rated amount of
you drove 20 miles to your the gain, based upon how long you
current job, then the new job actually resided in the home.
must be at least 70 miles from
the home to qualify for an If you lived there less than a
exemption. year, then the profit from your
home for sale is considered to be
• Your home was damaged from a a short-term gain. This means, on
natural or manmade disaster, and the pro-rated amount you owe
you were forced to sell it. taxes, you will pay the same tax
rate as you do on your 1040
• Perhaps an act of war or income tax form.
terrorism has caused the move.
If you have lived more than one
year but less than two in your The changes in the tax code for
home for sale, the profit is profit on homes for sale is much
considered to be a long-term easier now to calculate and
gain. Rather than paying the typically are more advantageous
generally higher income tax rate, to the seller now, than in the
most people are taxed at 15 past. Of course before making any
percent. So, if you have lived in home selling decisions or plans,
the home for less than one year, consult a Certified Public
it is to your advantage to remain Accountant or other tax
there until you pass the one-year professional.
time mark — if at all possible.
About the Author:
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 information please visit San Diego Homes
Read more articles by: J Harris
Article Source: www.iSnare.com |
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