Consider this…
In a “2013 Summertime Tax Tip,” the IRS reminded taxpayers about the current rules on home sales. Here’s a quick review of those rules.
Tax Free Home Sale
The tax law allows the majority of taxpayers who sell their homes to enjoy 100% tax-free profit from the sale.
If you have owned and used your home as your principal residence for at least two of the five years preceding the sale, you may exclude from income tax up to $250,000 of profit if you’re single or up to $500,000 if you’re married filing jointly. Generally, the exclusion may be used only once every two years.
The law provides that married individuals may exclude up to $500,000 of profits if:
* Either spouse owned the home for at least two of the five years before the sale,
* Both spouses used the home as a principal residence for at least two of the five years before the sale, and
* Neither spouse is ineligible for the exclusion because of the once-every-two-year limit. If one spouse cannot use the exclusion because of the once-every-two-year rule, the other spouse may still claim the exclusion if he or she qualifies. However, the exclusion then cannot exceed $250,000.
Meet the Requirements
The law does contain some relief for those taxpayers who cannot meet the ownership and use rules or who have already excluded gain on a home sale within the two-year limit. If the failure to meet either rule is due to a job change, health problems, or certain other unforeseen circumstances, a partial exclusion may be available. The partial exclusion is calculated based on the fraction of the two years that the requirements were met.
The IRS reminds homeowners that if all the gain in their home sale is excludable under the rules above, they probably don’t need to report the sale on their tax return. Only one home sale per two-year period can be excluded, and only a taxpayer’s main home qualifies for an exclusion. If a taxpayer has two homes and lives in both of them, the main home is usually the one lived in most of the time.
If you have questions about the tax consequences of your home sale, contact our office.
