Planning Taxes before Selling Your Home

Selling your home is not all profit. There are many nuances and things to know prior to putting out that For Sale sign and getting a buyer to sign on the dotted line. Just when you think you are going to walk away with a handsome profit along comes the IRS to separate you from your money. To prevent this there are a few things you should know.

The profit you make will very likely be taxable

First, the profit you make is likely going to be taxable. There are a few ways to avoid this, or minimize the impact. If the sale of your home does result in a capital gain it is possible to exclude this from your tax burden. You would have to have lived in the home two out of five years prior to the closing, however.

You are only permitted to exclude the gain from a home sale once every two years

Also, you are only permitted to exclude the gain from a home sale once in a two-year period, and if you own more than one home you are only able to exclude the gain from the home in which you or your family reside in for the most amount of time in a year.

You are not required to report the sale of your home on your tax returns if the gain was not taxable. However, you are required to include the sale in your returns if you are not able to exclude either a portion or full amount of the gain. You should note that selling your home at a loss is not a deductible tax item.

There are some other exceptions

There are other exceptions as well. For example, exemptions are accessible to certain military personnel and branches of service, Peace Corps volunteers and people who may suffer from a disability that is recognized by the IRS. Too, there is a limit to the amount that can be excluded - $250,000 for individual filers and $500,000 for joint filers.

Seek the advice of an accountant

All of this information should be taken into consideration prior to deciding whether or not to sell your home. It is advisable to educate yourself or seek the consult of an accountant as part of the planning process. There are a number of forms and publications that are available from the IRS that offer tax preparation and filing guidelines specific to home sales.

Learn the tax implications of a home sale

Some of the most common include rules for first-time homebuyer credit, forms that explain how to claim the proceeds from real estate transactions, how to claim advanced payments for the tax credit - and how that will impact your tax burden - and even a change of address form.

Learn about the tax implications of a home sale before you put that sign in your yard. It could save you thousands of dollars in the end.

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