What kind of taxes will you have to pay if you sell your home? A good realtor should be able to answer some of these types of questions. Your accountant may have some input as well. It’s a good idea to know what you are in for beforehand. Let’s look at some of the tax issues regarding selling a home.
Who pays after the sale and what is paid?
When selling a house, taxes are always settled at closing. There is a system in place during the whole process where the seller and buyer pay their share of taxes with safeguards in place to make sure all parties are protected.
There are sometimes situations where taxes may have already been paid in advance. For instance, the seller may have previously paid taxes for the whole year, then during the sale, the buyer refunds the seller a pro-rated amount of the taxes in question.
The seller is responsible for the property taxes up to, but not including, the date the house was sold. The buyer is responsible for taxes on the sale date and afterward.
When it comes to taxes on the selling a house, the type of home is not a problem if:
- The house didn’t become yours by means of exchange in the last five years.
- You haven’t claimed any exclusion for the sale of the home within the last at least two years.
If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax–free. If you are married and file a joint return, the tax–free amount doubles to $500,000. The law lets you “exclude” this much otherwise taxable profit from your taxable income.
Here are some of the tips to keep in mind before selling your home:
- Exclusion of gain. To qualify for this, you must have owned the house and used it as the primary residence for at least two out of five years before the sale date.
- Exceptions that may apply. One example of an exemption applies to people with disability, and another one applies to members of the military.
- Not illegal not to report the sale. If your taxable gain is not in the taxable bracket, you don’t have to report the sale as stated above.
- Instances when you must report the sale. If you can’t exclude part or all of the gain from your sale, you have to report If you decide not to claim an exclusion, you also have to report the sale.
- Main homes only. For people who own more than one home, you can only exclude the gain of the sale of the main house. This is the home you live in most of the time.
- Sold at a loss. If you happen to sell your house at a loss, the loss can’t be deducted from your tax return
