Selling your home? Be tax savvy
It's a hot market right now and the temptation to upgrade your digs may be irresistible, but be sure you know what the tax implications can be before you stick that 'for sale' sign up in the lawn.
There is a tax break that allows you to exclude up to $250,000 (or $500,000 if you're married) in capital gains on the qualifying sale of your home. However, it may not be that easy.
To get the tax break, you have to meet three qualifications:
1. The home you're selling must be your primary residence - doesn't matter if it's a traditional home, condo, houseboat, or mobile home.
2. You must have owned the home for two of the past five years.
3. You must have lived in the home for two of the past five years.
Now, if you're all good there, you may still be in a situation that requires some special attention:
You've lived there a long time. Chances are, if you've lived in the home for a long time, you have a smaller mortgage (or maybe no mortgage). This means you own more of the home and are more likely to have a larger capital gain.
Two become one. Newly married folks, each with a home of their own, may have tax liability because they individually pass the required test on their own home, but not their spouse's property.
One becomes two. If you're divorcing, you need to know that property transferred to you is not deemed as a sale of your home. However, if the former spouse who keeps the home does sell it later, it may have an impact on the amount of gain exemption available.
Moving on. Special rules do apply to seniors who move out of their home into a different situation, such as assisted living or a nursing home.
Moving pains. As ever, there are other exceptions to the home gain exclusion rules, including: work, disability, foreclosure, debt forgiveness, inheritance, partial ownership, and unforeseen circumstances.
So, before you put your home on the market, visit with us so we can come up with a plan of action to reduce your tax exposure. Don't forget, it's a good idea to always save all sales records, original home purchase records, improvement costs, and other documents that support your home's capital gain calculation.