Recently, I have come across a few articles on housing that paint a positive picture and future as opposed to what we have been seeing the last few years. So if a home sale is on the horizon for you this summer, then read on (and/or watch this IRS "Selling your home" YouTube vid) for some points to consider from the federal tax side on things.
Besides the video, the IRS offers some good reading on the subject in IRS Publication 523, Selling Your Home. Pub 523 is comprehensive and explains the tax rules that apply when you sell your main home. (In most cases, your main home is the one in which you live most of the time.)
Some of those rules/content include(s):
- Reporting the sale.
- Business Use or Rental of the home.
- Factors used to determine Main home.
- Determining the basis in your home.
- Figuring the gain or loss.
- Speaking of gain or loss...if you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. The two key requirements to this include the ownership and use tests (there is a third test too)---and they are outlined in Pub 523. That exclusion limit is up to $250,000 in cap gains (from the sale) if you are a single taxpayer or up to $500,000 for those who file jointly. So a quick example, say you are a single taxpayer and you meet the tests (i.e. you qualify for the exclusion per the law) and you sell at $350,000 when your basis was $200,000, then that $150,000 capital gain would normally be excluded from taxation.
- If you or your spouse are on qualified official extended duty in the Uniformed Services, the Foreign Service, or the intelligence community, you may elect to suspend the five-year test period for up to 10 years. You are on qualified official extended duty if, for more than 90 days or for an indefinite period, you are:
- At a duty station that is at least 50 miles from your main home, or
- Residing under government orders in government housing.
There are other nuances to think about based on your complete set of facts and circumstances...things such as installment sales, for example. If you sold your home under a contract that provides for all or part of the selling price to be paid in a later year, you made an "installment sale". If you have an installment sale, you would report the sale under the installment method unless you elect out.
Bottom line is to offer you some resources so that you can make the most informed / best decision. To that end, here are two more avenues: IRS Publication 537, Installment Sales, since I brought it up, and IRS Publication 530, Tax Information for Homeowners.
