Important Home Ownership Tax Implications You Don’t Want to Ignore
Is there a word in the English language that inspires more stress than “taxes”? Maybe not, but that doesn’t mean that taxes need to overwhelm you! If you are selling your home, chances are you won’t even need to consider paying taxes on your profit. But if you are one of the few who do, these tricks will help you maximize the amount of money you keep in your pocket.
You’ll Know You’re Exempt From Paying Taxes If…
As long as you lived in your home for at least two years before the sale, then up to $250,000 of your profit remains tax-free! If you are married under those circumstances and file a joint tax return, you get to enjoy $500,000 of your profits tax-free. This is because current laws allow you to “exclude” this much from your taxable income, as long as you have not claimed the exclusion on another home sale within the last 24 months.
As with all laws, there are special rules in place that might help you qualify for these tax breaks even if you don’t meet all of the requirements. For example, if you acquired your home as part of a divorce settlement, you are able to count the amount of time the home was inhabited by your former spouse to pass the “two year” test. If you are a member of a uniformed service, foreign service, or intelligence agency, you can even have the time you are away on active duty “suspended” from consideration in order to meet the two year residency minimum.
What If You Don’t Qualify For Tax Exemption?
If you make more than $250,000 or $500,000 selling your home as a single or married person, or if you do not meet the other two requirements for tax exemption, you must report the equity you made on your home as a capital gain on Schedule D (Form 1040). Fortunately, the Schedule D paper is only two pages long. You simply outline your long term capital gains, meaning money you made on assets held for more than one year. You’ll provide the sale price, cost, and adjustments. If filing taxes isn’t your favorite way to spend a Saturday, ask for professional help to ensure you complete everything correctly.
Fortunately, most Americans are able to enjoy the profits of their home sale without paying any taxes!
