If you’re in the process of selling your home or are
considering doing so, you may have questions about how selling your home will affect your taxes. Unfortunately, there isn’t a simplistic, one-size-fits-all kind
of answer to this question.
How your home sale
will affect your taxes depends on a variety of different factors, which is why
it’s wise to work with a tax adviser who will look at your situation
individually and give you advice accordingly.
With that said, though, there are some basic things you
should know.
Tax-Free Profits?
You may have heard that any profit you made from the sale of
your home is tax-free. Most people get very excited when they hear the news,
but, unfortunately, it doesn’t apply to everyone.
Tax-free profits, however, can be a reality for people who
live in their homes for at least two years before selling them. There are
limits, though, as to how much of a profit can be counted tax-free, with a
lower limit for single people and a higher one for married couples.
This “tax free” opportunity can be used any time you sell a
primary home up to once every two years.
Secondary Homes
If you’re one of the growing number of Americans who owns
more than one home, then you can still enjoy tax-free profits on any secondary
home that you sell. Secondary homes are homes that you do not live in for the
majority of the year and that you use infrequently or as vacation or guest
homes.
To enjoy the tax break on a secondary home, however, you would
need to begin using it as a primary home and meet the “two year” rule, as
described above, before you sold it. The IRS may ask you to prove that you used
the home as a primary residence, so fight any temptation to fib; it’s not worth
it.
Also bear in mind that, even if you do meet the two year
rule, less profit can be deducted from the sale of secondary homes. The amount
you can exclude from taxes, however, is dependent on a variety of factors, so,
as always, check with your tax adviser before making any big decisions.
As you can see, selling a home is a major event, at least as
far as your taxes are concerned. There are many other rules, regulations, and
considerations to keep in mind other than the ones mentioned here, though, so
make sure you seek some professional help as you go through this complex
process. Getting help from a tax expert will ensure that the sale of your home
ultimately benefits you as much as possible.
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