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Taxes and your home sale
Buying or selling a home is a huge process and requires a lot of knowledge on finances, taxes and other miscellaneous subjects.
Most of the time, when a person sells their home, they are usually selling it for some sort of a profit (hopefully). What many people do not realize is that you also get taxed on the profits you gain from the sale of your house.
But there is some new legislation that has been passed that deals with certain tax exemptions when you sell your house.
Obtaining up-to-date information on the housing market and tax industry can make it so you could save thousands of dollars on the sale of your home.
An August 11, 2006 article by fool.com, “Avoid paying taxes when you sell your home,” gives some pertinent information on the subject.
When most people get ready to sell their home, especially in today’s market they are not thinking about anything other then getting their home off their hands. But with careful planning, there are ways to get out of the huge taxes you have to pay on the gains from the sale of your home.
“Did you know that you can avoid paying taxes on $250,000 of capital gains when you sell your house? It's true -- you just have to meet a few requirements. Anyone planning to sell a primary residence in the near future should read up on the exciting new home-sale exclusion rules. You used to be able to exclude up to $125,000 of gain just once in your life, but you can now exclude up to a whopping $250,000 every few years. If that isn't tantalizing enough, consider that married couples can exclude up to a half-million dollars.”
This is great news for a lot of people, especially if you are a married person with a lot of equity looking to sell your home.
These new rules can save hundreds of thousands of dollars in money paid to the IRS. And who doesn’t like to save on their taxes.
But there are a few requirements to qualify to be in the home-sale exclusion category.
“You, the seller, must have owned and lived in the home as your principal residence for at least two of the five years preceding the date of sale. The two years don't have to be consecutive, though. In most cases, you can take advantage of this home-sale exclusion only once during any two-year period.”
These rules make it so you cannot take advantage of the system and try to “flip” houses and be tax-exempt.
The rules for married couples to exclude up to $500,000 are a bit stricter than the other amounts, since this is such a hefty sum of money. The couple must file a joint return for the year of the home sale, one of the spouses has to have owned the home for at least two years, and have lived in it as their primary residence for two years and finally, neither spouse used the exclusion on the sale of another residence within a two year period.
“Since this is such a big tax break, make sure you plan your home sale carefully to ensure that you qualify. Proper planning can save tens of thousands of tax dollars. And improper planning can cost you just as much.”