Were you lucky enough to have sold your home this year? Were you even luckier to have made a profit? If your gain was $250,000 or less (single taxpayer) or $500,000 or less (married taxpayers), your luck runneth over! Why? Because you don't have to share your profit with anybody! Not the IRS, not your state, not your county. It's seller take all! You don't even have to report it on your tax return! So, what's the catch? We all know there's got to be (at least) one.
To exclude the gain on the disposition of a home from income, the taxpayer must have owned and occupied the property as a principal residence for two of the last five years immediately preceding the sale. Generally, a taxpayer can claim only one exclusion every two years. However, reduced exclusions exist for taxpayers who dispose of more than one home within two years, for those who are forced to relocate due to a job change or health reasons.
Unlike under former law, the gain on the sale of a home is now permanently excluded, rather than rolled into the basis of the replacement home. In fact, the taxpayer is not required to even purchase a new home in order to exclude the gain. If you were lucky enough to have made a killing on your house sale (gain over $250,000 single filers and $500,000 joint filers) the taxable portion of the gain is reported on schedule D of form 1040 which means that it is subject to capital gain rates.
It sounds simple enough on paper, but believe me, there are pages of fine print which address all kinds of special circumstances like divorce, death, remarriage, rental conversions, etc. If you would like to discuss how this may affect you give us a call to set up an appointment. And please don’t put it off till April!
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