The Tax Implications of Selling Your Home

Many people relocate in the summer, when vacations make it easier to take time off from work. While relocating can be an exciting venture for a family, it can also come with important tax-related repercussions if the move involves selling their current home. For instance, taxpayers who sell their primary residences could be eligible to exclude all or part of the gains from that sale when reporting their income on that year’s tax return. Read on to learn more about the tax implications of selling your home.

Capital Gains 

Generally, when a taxpayer sells his or her home and earns a capital gain from that sale, then he or she will need to include that amount when calculating income on a tax return. There is, however, an exception that allows taxpayers in this situation to exclude up to $250,000 of those gains from their income calculations (or $500,000 for those who file jointly with their spouses). Homeowners who qualify for this exception and who exclude the entirety of their gain also aren’t required to report the sale on their tax return at all, unless a Form 1099-S was issued to them. Some taxpayers, on the other hand, experience a loss when they sell their home for less than they paid for it. Unfortunately, this loss isn’t deductible come tax time.

Ownership and Use 

In order to exclude the gains made on the sale of a home from his or her income when filing taxes, a taxpayer must first satisfy the ownership and use tests. Basically, to satisfy the exclusion requirement, a taxpayer must be able to show that during the five year period (ending on the date of the sale), the taxpayer not only owned, but also lived in the residence as their primary home for no less than two years. Things can become a bit more complicated when the taxpayer in question owns more than one home. In these cases, taxpayers are only allowed to exclude the gains from their main home and must pay taxes on the profits from the sale of any other residences that they own. Finally, it’s important to note that there are some exceptions to the qualification rules for certain individuals, namely those with disabilities and certain members of the military.

Reporting the Sale 

Taxpayers who don’t qualify for the capital gains exclusion are required to report the gain from the sale of their primary home when they file their returns. This is also true for those who choose not to claim the exclusion despite qualifying for it. Again, taxpayers who receive Form 1099-S are required to report the sale on their tax return regardless of whether they received a taxable gain.

Schedule a Free One-on-One Consultation Today 

If you live in Florida, are thinking about selling your home, and have questions about the tax repercussions of doing so, don’t hesitate to call CPA, former FBI Special Agent, and experienced Florida tax lawyer Ronald Cutler, P.A. for advice. You can reach us at 386-490-9949 or via online message.

Sources:

 irs.gov/newsroom/tax-considerations-when-selling-a-home

irs.gov/taxtopics/tc701