Home Sales and Taxation

Home sales and taxation go hand in hand. Fortunately, there are ways to reduce capital gains on your home sale and reduce taxes. In this article, we will go over secrets to home sales and taxation.

Exclusions

Under the Taxpayer Relief Act of 1997 there are exclusions that help reduce capital gains from home sales. You can exclude up to $250,000 if you are single or $500,000 if you are married. You can only claim this exemption if you meet certain requirements. First, you must have owned and lived in the home for at least two of the last five years. These years do not need to be consecutive. Second, you cannot have used this exclusion within the last two years. There are exemptions that will make you ineligible to claim this exclusion. These include:

• Selling as part of a divorce or separation
• Sales due to the death of a spouse
• Sales that include vacant land
• Taxpayers whose previous home was condemned or destroyed
• Taxpayers who were service members during the ownership period

Partial Exclusions

Sometimes you may not qualify for the full exclusion, rather you may be eligible for a partial one. These are due to three different circumstances. The first is work related. You can claim a partial exclusion if your move was due to a job transfer at least 50 miles away. Second, is health related. A partial exclusion is available if your move was to obtain specific medical care for yourself or a family member. Third, is due to unforeseeable events. You can qualify for a partial exclusion if certain events occur like your home being destroyed, a death, divorce, or having multiple children from one pregnancy.

Reducing Tax Liability

If you find yourself over the exclusion limit there are items, you can claim to increase your cost basis. Which reduces your tax liability. Some of the items you claim are:

• Settlement or closing costs from the purchase of the home
• Home improvements, like a new roof
• Real estate taxes that the seller owed but you paid and were not reimbursed for

Capital Gains

If the sale of your home generates a gain over the exclusion amount you may be subject to capital gains taxes. How much you owe will depend on your income. If you are single and make less than $44,625 or married and make less than $89,250 you will have a 0% tax rate. If you make between $44626 and $429,300 single and between $89,251 and $553,850 married, you will be subject to a 15% tax rate. The 20% tax rate applies if you are single and make more than $492,301 or married and make more than $553,851.

Selling Your Home

Home sales and taxation can be complex, but with proper planning you can greatly lower your tax burden. Consult with a qualified tax planner to properly prepare for a home sale.

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