Tax Tips You Should Follow When Selling Your House

Selling Your House

Selling a house can be a very involved process. You need to worry about hiring a broker, vetting potential buyers and negotiating deals. However, taxes are probably the biggest headache for most people selling. Here are some tax tips that you will want to follow.

The IRS requires people to report profits from the sale of their homes. However, there are some exemptions that you will want to be aware of. You may be able to deduct most or even all of the capital gains on the sale of your home.

Primary Residence

The IRS generally allows people to exclude profits from selling your primary residence. In order to qualify for this exemption, you need to have lived in the house as your primary residence for at least two of the five years prior to the sale.

Unfortunately, the IRS isn’t one-sided with its policy on tax exemptions for personal property. While you may be exempt from capital gains taxes on the sale of your primary home, you can’t deduct a loss.

However, you can still deduct losses on the sale of rental properties. You will need to repay any depreciation costs that you wrote over that time period though.

Selling Your House

Impact of Marriage on Taxation

You will also want to decide whether or not you and your spouse should file separately or jointly. The IRS allows anyone filing individually to deduct up to $250,000 of the profits from the sale of their house. Couples filing jointly are allowed to deduct up to $500,000 from the sale.

You should always crunch the numbers to see what the best decision is. However, almost all couples selling a house will probably be better off filing jointly if they are going to make a profit exceeding $500,000.

Exemptions for Difficult Situations

The IRS also has a number of exemptions for people that are struggling from difficult situations. You may be able to qualify for an exemption if you:

  • Face serious health problems
  • Divorce your spouse
  • Face long-term unemployment
  • Have multiple children from a single birth

However, it is important to keep in mind that these exemptions may not apply if you discharged your debt. You may actually end up facing higher capital gains taxes if your debt was discharged. You will want to speak with your accountant to see if you fall under any of these exemptions.

Notify Selling Agent of Exemptions

The IRS requires all homeowners that don’t qualify for these deductions to report the sale on Form 1099-S. Your selling agent or other professional that you are working with will send this form to you if you don’t notify them of the exemptions. Make sure that you certify that you are not required to pay a capital gains tax on the sale so you won’t need to receive the form.

Repaying Your Homebuyer Tax Credit

The IRS allows people to deduct up to $7,500 after buying their first home. They have to pay $500 back each year over the next 15 years. If you sell your house before that time, then you will need to repay any remaining balance to the IRS.

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Tahir Ismail has designed Peacepark.us to allow guest bloggers to post their unique, interesting and informative content for peace park readers. He does blogging himself and contributes to several blogs including peacepark.us

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