When thinking about selling a home, taxes are not usually the first thing most people think about. However, taxes are something to consider because they do play a role once you’ve sold your home. Therefore, it’s best to spend some time learning about the tax implications that accompany the sale of your home. Otherwise, you could be in for a big surprise at tax time. And no one likes tax surprises, especially when it comes to the IRS!
Here are some common issues and taxes to think about before selling your home.
Paying Taxes on the Profit of Your Home
Not everyone is required to pay taxes for the profit on the sale of their home. Here are the requirements:
Special Tax Circumstances to Consider
If you don’t qualify for all the requirements, there are some special rules that could apply that would allow you to claim either a full or partial exclusion for such. For example:
1. If you acquired the home as part of a divorce, you can then count the time your former spouse owned that home and use that time as part of the requirement for living in the home two out of the five years.
2. A continuous timeframe is not required for the two out of the five-year requirement. That means that temporary or short-term absences still count towards the amount of time you lived in that home to help you meet the two out of the five-year requirement. And that includes if you rented out your home during that time as well.
3. Another exception is if your spouse dies and you don’t remarry before you sell your home, then you can use that property as part of the two to five-year live-in use requirement.
If you are in the uniformed services, any foreign service, or in one of the intelligence agencies, you can opt to have the five-year requirement for ownership paused for up to ten years during the time either you or your spouse serve in a qualified official capacity. A qualified extended duty is considered more than 90 days or for an unknown amount of time that you are stationed at least 50 miles from your primary home. Or, if you are living under government orders in a government housing unit.
If you would like to learn more about the tax implications that come with selling your home, please contact us today. We’d love to assist you with any of your tax needs.