During the Summer months, many families take advantage of the warm weather and move. As such, a lot of homeowners will be hoping to benefit from the unprecedented rise in real estate prices by selling. However, selling a home is not as straightforward as it seems, especially when it comes to the tax impacts. To help guide sellers through this complicated process, your KerberRose trusted advisors have compiled a list of tax tips for home sellers.
Before selling your home, you should be aware of some important tax implications, such as:
- Homeowners may qualify to exclude all or part of any gain from the sale of their home from their income when filing their tax return. To qualify, the taxpayer must have owned and lived in the house as their main residence for at least two years of the five-year period ending on the date of the sale.
- Taxpayers who sell their main home and have a gain from the sale may be able to exclude up to $250,000 of that gain from their income. Taxpayers who file a joint return with their spouse may be able to exclude up to $500,000.Also, taxpayers may only claim the exclusion once during a two-year period.
- Homeowners excluding all the gain do not need to report the sale on their tax return unless a Form 1099-S was issued.
- Some taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.
- Taxpayers who own more than one home can only exclude the gain on the sale of their main residence. They must pay taxes on the gain from selling any other home, i.e. vacation home.
The tax laws listed above are far from comprehensive, as there are many additional tax consequences and situations which can arise from selling your house. For a more comprehensive list of situations and laws, visit the IRS website.
Other Tax Impacts to Consider
In addition to the effects a home sale can have on your tax return, there are other tax impacts to consider:
- Sellers must pay property taxes on a home sale. The seller is responsible for taxes prorated up to the closing date; the buyer will start paying property taxes once they take possession.
- Sellers must pay an estate transfer tax (often referred to as a government transfer tax or a title fee). The amount owed is determined by a certain percentage of the sale price; this percentage varied by state.
Again, the tax consequences listed above are not comprehensive, as selling a home can be a complicated process. Consequently, if you are unsure about how selling your home can affect your taxes, it is best to work with and receive advice from an experienced professional. If you need general guidance or have a specific tax question about selling your home, contact a KerberRose Trusted Advisor today!