Are You Planning To Sell or Buy A Home???

June 10th, 2021

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

In the past several months the prices for new or existing homes has increased non-linearly!  It seems as if everyone wants to take advantage of the situation.  You have probably already read or heard about others who have been caught unprepared.  They sold their existing home the same day that it came on the real estate market for more than the “Listed Price”, but they were unable to find a new home in their price range.  Now they’re “Renters” for an unplanned period of time.

In my opinion, a home provides three benefits to the owners – 1) an “investment” with tax advantages for mortgage interest & property taxes, 2) a place to live and enjoy for the owners, and 3) a place to enjoy and share great times with friends, family, business associates, etc.

In many or most cases, IF you meet the Federal requirements below, you can exclude up to $500,000 in the taxation of capital gains when you sell your home.  This is for married couples who file a joint income tax return.  Single taxpayers and married filing separately can exclude up to $250,000.  Accurate, written records are absolutely essential.

The formula to be used for reporting the sale in Schedule D (Capital Gains & Losses) of your tax return is:  Original Purchase Price + All Capital Improvements While You Owned The Home = Your Cost Basis.  Then the Selling Price Less your Cost Basis Less the Selling Costs = Your Capital Gain.  Keep all written records especially the Housing and Urban Development HUD-1 form. Capital Gains, if any, are taxable.  Capital Losses are not deductible, but they are reportable.

Contact either the title firm or the law firm that conducted the sale of your home.  Ask if you will receive a Federal Form 1099 S. (About Form 1099-S, Proceeds from Real Estate Transactions | Internal Revenue Service (irs.gov) ).  The financial information in your Schedule D must agree with the financial data in this form that has already been reported to the Internal Revenue Service!

Issue Number:  Tax Tip 2021-83

Home Ownership and Taxes: Things Taxpayers Should Consider When Selling A House

It’s important for taxpayers to understand how selling their home may affect their tax return. When filing their taxes, they may qualify to exclude all or part of any gain from the sale from their income.

Here are some key things homeowners should consider when selling a home:

Ownership and use
To claim the exclusion, the taxpayer must meet ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their main home for at least two years.

Gains
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. Homeowners excluding all the gain do not need to report the sale on their tax return.

Losses
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. They must pay taxes on the gain from selling any other home.

Reported sale
Taxpayers who don’t qualify to exclude all the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return. Taxpayers who receive Form 1099-S, Proceeds from Real Estate Transactions must report the sale on their tax return even if they 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
Worksheets included in Publication 523Selling 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.

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Posted by Bill Seabrooke