The IRS recently released a list of ten tax tips for those planning to sell a home which could help homeowners understand the tax implications of the home sale process. While each tip does not apply to everyone, they may be useful.
Gain exclusions
According to the IRS, the gain from a home sale can generally be excluded from taxable income as long as the home served as a primary residence for at least two of the last five years before the sale. The amount which can be excluded goes up to $250,000, or $500,000 for a jointly filed tax return.
This does not apply if the home seller has sold another home within two years and excluded the gain from that sale, and any time the gain cannot be excluded it must be reported as taxable income. The IRS also noted that the gain can only be excluded from a single home, even if a seller owns and intends to sell more than one.
The IRS publication on home sales notes that if a home is rented or used for business purposes, the tax status is significantly different. Exclusions may be permitted if the home was also a residence for at least two years out of the previous five, but an amount equal to previously claimed depreciation due to rental cannot be excluded.
Home sale tax regulations
Forbes covered the IRS announcement and reported that despite the gain exclusion, any losses from the sale of a primary home are not tax deductible. The source noted that the IRS makes worksheets available as part of its publication on selling a home, which can be used to help determine the gain or loss from a sale and the possible exclusion.
Another worksheet can be used to help track a home's basis, according to Forbes. This figure is determined by examining the purchase price for the house and the cost of subsequent changes, like remodeling, which can significantly alter the property's value.
The IRS also included a reminder that failing to file a change of address when moving may prevent recent home sellers from receiving refunds or other vital correspondence.
In all cases homeowners should consult with a professional tax advisor to be sure they are aware of updated information.
Home sale tax regulations
Forbes covered the IRS announcement and reported that despite the gain exclusion, any losses from the sale of a primary home are not tax deductible. The source noted that the IRS makes worksheets available as part of its publication on selling a home, which can be used to help determine the gain or loss from a sale and the possible exclusion.
Another worksheet can be used to help track a home's basis, according to Forbes. This figure is determined by examining the purchase price for the house and the cost of subsequent changes, like remodeling, which can significantly alter the property's value.
The IRS also included a reminder that failing to file a change of address when moving may prevent recent home sellers from receiving refunds or other vital correspondence.
In all cases homeowners should consult with a professional tax advisor to be sure they are aware of updated information.
