In a vibrant home sales market, there’s always a curiosity about selling and trading up, or cashing in to downsize. Before you call a listing agent, consider the tax implications. The following tips apply to sales of your primary residence, not a second or vacation home:
Exclude all or part of the gain from a sale when:
- You have owned and used the home as your primary residence for at least 24 months of the five years prior to the sale date. (24 months don’t have to be consecutive.)
- The gain from the sale is $250,000 or less ($500,000 if you file joint income tax returns). Also, the Net Investment Income Tax doesn’t apply to this amount.
- You have claimed the exclusion only once every two years. (There are some exceptions.)
- You have a disability, or are physically or mentally unable to care for yourself, then you only need to have residency for 12 months of the last five years, and time living in a licensed care facility counts.
If your home was destroyed or condemned, or if you work for the government in a uniformed, intelligence, or Peace Corps role, then you also have some gain-exclusion eligibilities.
Disqualify the exclusion if:
- You acquired the property through a like-kind (1031) exchange during the last five years.
- You’re subject to the expatriate tax.
Report the sale to the IRS if:
- You can’t exclude all or part of the financial gain from the sale.
- You don’t claim the exclusion.
- You receive a Form 1099-S (Proceeds from a Real Estate Transaction)
No need to report the sale if:
- The gain from the sale isn’t taxable.
- You sold your home at a loss. The money you receive isn’t taxable, and the loss isn’t deductible from income.
- You transferred your home or your share of a jointly-owned home to a spouse or ex-spouse as part of a divorce settlement.
Remember to keep your address information current with the IRS, using Form 8822. For answers to more questions about the financial impact of selling your home, contact a Salmon Sims Thomas tax advisor.