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Do you know the tax ramifications of selling your home?

Posted on October 4, 2017

The housing market is booming, which is good news for anyone selling a home. When you sell your home and make a profit, generally, you turn around and put that profit into another home.

But what happens if you decide not to buy another home right away? Or what if you downsize and buy a new home for less than the one you sold?

Here at Teipen, Selanders, Poynter & Ayres, we have some answers for your home sale questions. Here’s what you need to know about taxes related to home sale gains and losses:

Tax exclusion – Homeowners may qualify to exclude from their income all or part of any gain from the sale of their main home. To claim the exclusion, during the five-year period ending on the date of the sale, you must have:

  • Lived in the home you’ve owned for two of the last 5 years if you’ve owned it for more than 2 years
  • Owned the home for at least two years
  • Lived in the home as your main home for at least two years.

If there is a gain from the sale of your main home — in most cases, you may be able to exclude up to $250,000 of the gain from income or $500,000 on a joint return. However, if you receive a 1099, you must report the gain in your tax return for that year. Homeowners who can exclude all of the gain may not need to report the sale on their tax return.

What if you lose money? A main home that sells for lower than the original purchase price is not deductible on your taxes.

Reporting the sale of your home on a tax return is required if – all or part of the gain is not excludable. A sale must also be reported on a tax return if the taxpayer chooses not to claim the exclusion or receives a Form 1099-S, Proceeds from Real Estate Transactions.

Naturally, there are exceptions – These tax rules are different for persons with a disability, certain members of the military, intelligence community, and Peace Corps workers, among others. Ask your CPA for details.

Here’s what to keep in mind:

  • If you own more than one home, you may only exclude the gain only on the sale of your primary home. Taxes must be paid on the gain from selling any other home.
  • The first-time homebuyer credit has special rules that apply to the sale. For more on those rules, see IRS Publication 523. Your CPA can help.
  • Some work-related moving expenses might be deductible. IRS Publication 521 can help you, or consult with your CPA.

If you recently sold your home, congratulations from your CPA team at TSPA. Not only do we want to be sure you know everything that may affect your tax position, we also want to offer a quick reminder:

Be sure to update your address with the IRS (use IRS Form 8822) and the U.S. Postal Service. And, if you purchased health coverage through the Health Insurance Marketplace you should be sure to notify the Marketplace of your new location.