Important Tax Tips for Home Sellers
While most people don’t usually praise the IRS, there are some things that they can be appreciated for, such as tips for selling your home and reaping the maximum tax benefits. Here at the Powell local movers, we want to share the top tips recommended by the IRS that will help you understand tax law and your responsibility as a seller.
For the most part, you are able to exclude the gain from your total income if you have owned and used the home as your main residence for two years out of the five years prior to the home selling.
If you do have a gain from the sale of your main home, you may be able to exclude up to $250k of the total gain from your reported income. If you are filing a joint return, that allowance doubles to $500k.
If you gain from the sale of another home in the two-year period prior to the sale of your home, you will be ineligible for the tax exclusion. Also, if you have any other gain that is not excluded, it is fully taxable, and it must be reported on Form 1040 as a capital gain or loss.
You cannot deduct a loss from the sale of your main home!
If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is typically defined as the one you live in most of the time.
If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year's tax return.
When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.