In this First-Timer Primer, we look at an individual’s tax liability associated with the sale of their home.
Here’s the overall picture: For most people, capital gains from selling a home aren’t taxed. The exception is one of the biggest in the tax code — for a single person, up to $250,000 in profit is exempt from obligations to Uncle Sam. If married and filing jointly, that threshold goes up to a comfortable $500,000 exempt from taxation.
There are a few requirements related to getting the tax break:
1. The home has to be your primary residence. The IRS cares how much time you spend there, where you work, and the addresses you use on your tax returns, driver’s license, voter registration and other affiliations.
2. You have to have owned and used your home for at least two of the five years prior to selling it. The years of “ownership” and “use” don’t have to be concurrent or consecutive, and you don't have to be living in the home at the time of the sale.
If you’ve lived in the home for fewer than two of the previous five years, you’re not completely ineligible for the break, but it will be smaller. A married couple who has only lived in a home for one of the past five years has their tax-exempt profit threshold reduced to $250,000 from $500,000. There are special considerations for people inheriting homes, on active duty in a government position or receiving a home as part of a divorce settlement.
3. You can’t have taken the capital gains exemption on another home within the past two years. The exemption can only be used once every two years.
UrbanTurf encourages readers in complicated tax situations to check with an accountant before claiming the exemption.
- First-Timer Primer: How Much Cash Do You Need to Buy a Home?
- First-Timer Primer: How Do Mortgage Payments Work?
- First-Timer Primer: The Mortgage Pre-Approval Process
This article originally published at http://dc.urbanturf.com/articles/blog/first-timer_primer_taxes_and_profit_from_selling_a_home/9852
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