Homeownership and your taxes: 7 Things you as taxpayer should know when selling your home
It’s important for you as the taxpayer to understand how selling your home may affect your tax return. When filing your taxes, you may qualify to exclude all or part of any gain from the sale of your home.
Here are 7 key things homeowners should consider when selling a home:
- Ownership and use
To claim the exclusion, you the taxpayer must meet ownership and use tests. During a five-year period ending on the date of the sale, you the homeowner must have owned the home and lived in it as your main home for at least two years. And must sale within the last two years of ownership to qualify.
You the Taxpayer who sells your main home and have a gain from the sale may be able to exclude up to $250,000 per person of that gain from your income. You the Taxpayer who files a joint return with your spouse may be able to exclude up to $500,000. Make sure you have your purchase escrow papers and your selling escrow papers including your improvement information.
Some taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.
- Multiple homes
Taxpayers who own more than one home can only exclude the gain on the sale of their main home. You must pay taxes on the gain from selling any other home. If depreciation was taken that is recapturable and you will pay ordinary taxes on the recapture of depreciation.
- Reported sale
If you as a Taxpayer don’t qualify to exclude all the taxable gain from your income you must report the gain from the sale of your home when you file your tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return. If you received Form 1099-S, Proceeds from Real Estate Transactions must report the sale on your tax return even if you have no taxable gain.
- Possible exceptions
There are exceptions to these rules for some individuals, including persons with a disability, certain members of the military, intelligence community and Peace Corps workers.
Worksheets included in Publication 523, Selling Your Home can help taxpayers figure the adjusted basis of the home sold, the gain or loss on the sale and the excluded gain on the sale.
Book a call today and let's discuss your options. 707-255-8353
Lillian Meyers CFP®, CDFA®, EA is a financial planner in Sonoma, California helping clients with Tax and Tax strategies. She has decades of experience assisting clients in living their best life through Tax Planning and Strategies and the use of financial planning, investment management, and other sophisticated financial options.