Tax Information for Sellers
Homeowners receive numerous tax benefits from the US Government, including tax and mortgage interest deductions as well as many other perks, some of which applying to home sellers.
So, if you feel a bit uneasy about leaving your old home with all the memories inside it, remember that you can gain considerable benefits from selling your property.
Eliminating the Issues Created by Home-Sale Taxes
After the Taxpayer Relief Act of 1997 came into effect, homeowners who meet specific eligibility requirements can qualify for a number of tax relief benefits. Millions of eligible tax payers interested in selling their homes can now avoid paying taxes entirely as long as their profits remain within certain limits.
The following two cases are explicitly covered under Internal Revenue Code Section 121:
- Single filers can benefit from exclusions for up to $250,000 in home sale profits;
- The same advantage applies to couples filing joint tax returns in the amount of $500,000.
As an additional advantage to all of this, the Taxpayer Relief Act also states that home sellers don’t need to have tax-free earnings in order to buy a new home. They have complete freedom to spend their money on basically anything.
Are You Eligible?
Two main points have to be mentioned as crucial in terms of becoming eligible for receiving the tax relief advantages mentioned above.
The first one is for the title holder of the property to own it as his or her main residence for at least two years during the 5 year period leading to the sale. Secondly, upon the renewed use of this exclusion, at least two full years need to pass after the previous one.
A use and ownership test employed by the IRS can determine the period in which you’ve used the property as your residence through a detailed evaluation process.
The good news about all this is that you can sell as many homes as you want; however, you will always be limited by that 2-year period which must pass before you can become eligible for tax break once more. Basically, you can rent your home for a number of up to three years between two years of ownership, and you can still be eligible for tax exclusion.
In case you sell your property before the two years are up, you may obtain tax relief in case the sale was made because of a health emergency, for instance. Nevertheless, even when we’re talking about such difficult situations, you will still need to pay taxes on any obtained profit.
Tax Benefits and Selling Costs
Even if you may be eligible for home-sale tax relief, selling costs deducted from your capital gain may not apply to this unless you have the express intention of improving the sale value of your home and you’re able to finish them within a period of 90 days.
Among others, these include repairs, home maintenance tasks, flower planting and adding decorations. This does not apply to legal fees, brokers’ commissions, administrative and advertising costs, or inspection fees.
Please feel free to use the information available on our website to contact our special representatives here at Realty45 Inc, in case you need additional information about the advantages and tax benefits associated with selling your home.
