Tax Implications of Selling a House

Many homeowners will be expecting to gain a significant profit from selling their homes. However, there are tax implications associated with large capital gains from the sale of a home. Here are a few things to keep in mind for sellers who are curious about income tax rules regarding real estate sales. As always, you should consult a tax professional to make sure you are compliant with current tax laws.

1) Individuals can exclude profits of up to $250,000 of capital gains from real estate sales. Married couples who file jointly can exclude up to $500,000.

2) When using the home sales exclusion, homeowners must meet certain requirements. They must have owned the home for at least two of the last five years before the sale, and they also must have lived in the property for the last two of the five years before selling. Additionally, the home has to have been the seller’s primary residence for the last two of the five years prior to the sale. Finally, this exclusion cannot be used if it has been claimed within the last two years.

3) Usually, homeowners aren’t required to indicate the sale of a home on their income taxes. However, it must be included if they were issued a 1099-S by a real estate agent. Typically, sellers can avoid this by certifying that they meet the ownership, use and timing specifications at the act of sale.

4) Unforeseen events such as a divorce, health changes and having to relocate for work can be qualifiers to receive a reduced or partial exclusion.

Remember these helpful tips; they can be of great assistance when filling out federal income tax forms.