If you plan on selling your main home sometime soon, read these tips to be sure you are not paying more tax on the sale than you need to. You may not need to report the profit from the sale as income on your tax return.
Here are 7 tips to keep in mind when selling your home.
1. If you sell your home at a gain, you may be able to exclude part or all of the profit from your income. This rule generally applies if you’ve owned and used the property as your main home for at least two out of the five years before the date of sale.
2. You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return). This excluded gain is also not subject to the new Net Investment Income Tax, which is effective in 2013.
3. If you can exclude all of the gain, you probably don’t need to report the sale of your home on your tax return.
4. If you can’t exclude all of the gain, or you choose not to exclude it, you’ll need to report the sale of your home on your tax return. You’ll also have to report the sale if you received a Form 1099-S, Proceeds From Real Estate Transactions.
5. Generally, you can exclude a gain from the sale of only one main home per two-year period.
6. 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 usually the one you live in most of the time.
7. You cannot deduct a loss from the sale of your main home.
Be sure to bring any paperwork from the sale of the home to your tax preparer this coming tax season!