Sale of Principal Residence
One of the most asked questions in the tax season is about the sale of a personal residence and if there will be any tax when the sale is made. The answer to that question is maybe. In order to determine if your home sale will be taxable you first need to answer the following questions.
1. Have I lived in this home as my principal residence for at least 2 out of the last five years?
2. Am I single or married? (This may be harder for some than others)
3. What did I pay for this residence?
4. What were the value of the improvements I/we made to this residence?
5. What will I sell this home for?
6. What are the closing costs of sale and of my purchase?
With this information you can get a general idea of the tax liability of the sale. Again this is how it works.
Each individual has a $250,000 exclusion for capital gains from the sale of a principal residence if they have lived in it for 2 out of the past 5 years? So if you are single this is the math.
Sales price, minus purchase price minus closing costs minus $250,000. If the result is less than zero you pay no tax. If you are married and or if there are two or more owners of this residence you just substitute the $250,000 for $500,000. That is as long as this is the principal residence of all owners.
There are some problems if you have used your home for a business or you have rented out a room to a tenant. Email us to get more info.
Finally, there are some exceptions to these rules. There are what the IRS calles "Safe Harbor" exceptions. If you have to sell prior to living in the home for the 2 year period. If you have a two bedroom home and you have multiple births. If you have a job change. If your home slides down a hill, for example, or some other disaster. Divorce works well here also. Do not go out and get a divorce just to sell you home sooner.
Remember there are several other exceptions and rules under this IRS code which has a number. Code number 121. The IRS has a code for all stuff.
1. Have I lived in this home as my principal residence for at least 2 out of the last five years?
2. Am I single or married? (This may be harder for some than others)
3. What did I pay for this residence?
4. What were the value of the improvements I/we made to this residence?
5. What will I sell this home for?
6. What are the closing costs of sale and of my purchase?
With this information you can get a general idea of the tax liability of the sale. Again this is how it works.
Each individual has a $250,000 exclusion for capital gains from the sale of a principal residence if they have lived in it for 2 out of the past 5 years? So if you are single this is the math.
Sales price, minus purchase price minus closing costs minus $250,000. If the result is less than zero you pay no tax. If you are married and or if there are two or more owners of this residence you just substitute the $250,000 for $500,000. That is as long as this is the principal residence of all owners.
There are some problems if you have used your home for a business or you have rented out a room to a tenant. Email us to get more info.
Finally, there are some exceptions to these rules. There are what the IRS calles "Safe Harbor" exceptions. If you have to sell prior to living in the home for the 2 year period. If you have a two bedroom home and you have multiple births. If you have a job change. If your home slides down a hill, for example, or some other disaster. Divorce works well here also. Do not go out and get a divorce just to sell you home sooner.
Remember there are several other exceptions and rules under this IRS code which has a number. Code number 121. The IRS has a code for all stuff.
posted by Traxler | 3:07 PM
0 Comments:
Post a Comment
<< Home