Joint filers may exclude $500,000 in capital gains tax on sale of home.
If you are contemplating selling your home, then you need to know how the Internal Revenue Service (the “IRS”) will classify the tax on sale of home. For most folks, their personal residence is the most valuable capital asset they own. Without the exclusion of gain from the sale of a personal residence provision under I.R.C. § 121, selling your home would create a rather large tax bite.
Porter Law Office, LLC is a boutique tax firm that assists individuals and businesses with a variety of tax issues, including advising on rules regarding recognition of the capital gains tax on property.
This article provides 10 tax facts that you should consider when selling your home.
10 Tax Tips Regarding Tax on Sale of Home
If your 2013 are on extension to Oct. 15, and you have not filed, use the IRS e-file system to prepare and file your tax return. The IRS’s tax software will do most of the hard work relating to the tax on sale of home for you. You can use IRS e-file through Oct. 15. If you file a paper return, you may use the worksheets in Publication 523 to help you file. Below are 10 important tips to consider when selling your personal residence.
- Ownership and Use Tests: If you owned your home and used it as your main home for at least two out of the last five years, you may be able to exclude the capital gains tax on the sale of your home.
- Exceptions: The ownership and use rules have exceptions. For example, exceptions apply to certain persons with a disability, certain members of the military, or certain government and Peace Corps workers.
- Gain Excluded: Single taxpayers can exclude up to $250,000 in gain from the sale of your home. The limit for joint filers is $500,000. Although net investment income includes capital gains, the Net Investment Income Tax under I.R.C. § 1411 will not apply to the excluded gain.
- Reporting: You may not need to report the sale to the IRS on your tax return if the gain is not taxable.
- Tax on Sale of Home: If you cannot exclude all or part of the gain, you must report the sale on your tax return. Further, if you choose not to claim the exclusion, you must report the sale to the IRS. If you receive a Form 1099-S, Proceeds From Real Estate Transactions, you must also report. The IRS recommends reviewing its FAQs on the Net Investment Income Tax if you need to report the sale.
- Time Limit: Generally, you can exclude the gain from the sale of your main home only once every two years.
- Main Home: If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
- First-Time Homebuyer Credit: If you claimed the first-time homebuyer credit when you bought your home, special rules apply to the sale. See Publication 523 for details.
- No Loss Deduction: If you sell your main home at a loss, you can’t deduct it.
- Change Your Address: After you sell your home and move, you should send the IRS notification of your new address. To change your address, use Form 8822, Change of Address.
Important note about the Premium Tax Credit. If you receive advance payment of the Premium Tax Credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.
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Contact Porter Law Office, LLC
Porter Law Office, LLC is a boutique firm that assists individuals and businesses with tax planning. If you are contemplating selling your home, there are rules that need to be followed to ensure you do not get hit with the tax on sale of home. Contact an experienced tax lawyer to discuss your options. Columbus tax attorney Matthew R. Porter, J.D., LL.M. has the skills you need to properly structure your tax transaction. Contact Mr. Porter today for a free consultation to discuss your case.