Helpful Tax Tips to Know When Selling a Home

When it comes to selling a home, it is especially helpful to understand how this action can affect your taxes and how to subsequently maximize the tax benefits.

taxes from a home sale

Are you required to report the sale to the IRS?
Is the gain from selling the home taxable?

Knowing the answers to these questions, along with several others, will help you both maximize the tax benefits and make the entire process less time-consuming. Here are a few helpful tax tips to know when selling a home.

The Gain on the Sale of Your Home May Be Tax-Free

Generally, gains from any sales are taxable. However, in some cases, the profit made from selling your home might not be taxable.

If you meet all of the following qualifications, you may be able to exclude all of, or up to $250,000, of the gain from your sale (or up to $500,000 if you’re married and filing jointly):

  • You owned the home for at least two of the five years prior to the date of the home being put up for sale.
  • The home must have been your primary residence for at least two of the five years prior to the date of sale.
  • You must not have excluded the gain on the sale of another home within the last two years before the current sale.

If you are filing jointly and would like to exclude up to $500,000 of the profits, at least one spouse must meet the ownership requirement, and the house must have been both individuals’ primary residence for at least two of the five years prior to the date of the sale. A joint tax return must also be filed.

If all of these requirements are met, the gain from the sale of your home may be tax-free. However, even if all of these requirements are not met, there are multiple exceptions that may still grant you the ability to exclude a portion of the profit. To discuss these options and determine if you qualify, call us today to schedule a consultation.

You Can Choose Whether or Not You Want to Exclude the Gain from A Sale

Typically, you are only allowed to exclude the gain from the sale of your home once every two years. So, you do have the option to refrain from excluding the gain of your sale. Doing so would be ideal for an individual who would benefit more by claiming the current gain as income and saving the exclusion for a future sale of a home.

You May Not Be Required to Report the Sale

If you do not receive a Form 1099-S from your real estate agent, and the profit made from the sale of your home is determined to be tax-free, you most likely do not need to report the sale of your home on your tax return.

However, if you do not meet the requirements for excluding the gain on the sale of your home and are given a Form 1099-S, you will need to report it on your tax return. A Form 1099-S is issued by a real estate closing agent and is drafted to document the sale and profits of the home. When you receive it, this form is also automatically sent to the IRS. If this form reaches the IRS, even if your gain is determined to be non-taxable, you must include the sale on your tax return.

To prevent this form from being drafted, you must prove to the real estate agent that the gain on the sale of the home will be tax-free by affirming that the requirements listed above are met, as well as prove that no portion of the home was utilized for business or rental purposes. If this process is completed within a certain timeframe, then a Form 1099-S will not be used to close the sale, and you will not need to report the sale on your tax return.

Remember to Update Your Address

After selling your home and getting settled, reporting an address change to the IRS is imperative. Simply file a Form 8822, Change of Address. Notifying any insurance companies and other important entities of your address change should also be included in this action. This is particularly important if you are expecting a tax refund from the IRS.

Contact an Experienced Raleigh CPA to Handle Your Real Estate Tax

With all the infinite requirements and exceptions regarding taxes after the sale of a home, taking all the necessary steps to ensure that you are maximizing your tax benefits can be challenging. The tax requirements can be both tricky and tedious, and one simple mistake can cause an IRS investigation to take place.

That is why partnering with a local CPA to handle your tax preparation for you is the most ideal solution. Contact our Raleigh accounting firm today by calling 919-420-0092 or by submitting our online contact form.