When You Sell A House Do You Have to Pay Taxes?
Will you pay taxes on the profit you make from selling your home? It’s not likely, unless you have gains that total over $250,000 (that number doubles for married couples – $500,000). It is essential to understand the rules, or work with someone who does, in order to correctly report the sale of your home and any sequential gains. The majority of home sellers are not even required to report the sale to the IRS, but if you are an exception it is best to know the rules.
The law of the land used to be that once a person reached the age of 55, he or she was entitled to a one-time option of excluding up to a $125,000 profit from the sale of a primary residence. This law changed in 1997. The new law has no age regulations, so any homeowner can exclude up to a $250,000 gain (or $500,000 for married couples filing jointly) on the sale of a home. You are able to use this exclusion multiple times; as long as you are selling a primary residence you have lived in for two of the last five years, and have not used this exclusion for another property in the last two years.
The IRS carefully regulates tax-free gains, and have drafted up the rules and regulations to qualify for the capital gain tax-free exclusion. You must have owned your home for a minimum of two years during the last five years, and have resided in the home as your primary residence for at least two years of the last five years. Additionally, you must not have excluded the gain from the sale of another home during the two year period. A homeowner must meet all of these requirements in order to avoid paying taxes on the sale of a home.
If you do not meet all of the qualifications, you will have to pay taxes on the gain. On the condition that the profit from the sale of your home exceeds the specified limit, the surplus is reported as a capital gain. You must have owned the home longer than one year for the gain to be considered a long-term capital gain. If you received the First Time Homebuyer credit when you bought your home, you may be required to pay a portion (if not all) of it back. If you live in two homes, only one home can be considered your primary residence for the purposes of a tax-free gain. If you did not reside in the primary residence the entire time you owned it, you may be required to pay a portion of taxes on the gain.
Calculating taxes and understanding the complicated IRS regulations and legal jargon can grow quickly overwhelming. A homeowner will have to meet ALL of the requirements in order to qualify for tax exclusion. Contact As Is Now today to speak with a professional about selling your house the non-traditional way.