How to Maximize Your Tax Savings When You Sell Your Home
By Taxation Solutions, Inc. on 2017-08-03
When you sell your home, you don't necessarily owe tax on 100% of the profit from the sale. The IRS allows something called a "gain exclusion." The gain exclusion means that if you sell your home for more than you have invested in it (what's called the cost basis), each taxpayer is potentially eligible to exclude up to $250,000 from being taxed. For married taxpayers, you may be eligible to exclude up to $500,000.
To qualify, each taxpayer must meet tests of both ownership and occupancy:
- During the previous five years, he/she must own the home for at least two years.
- During the previous five years, he/she must live in the home as their primary residence for at least two years. Temporary absences (less than one year) due to illness, education, employment, vacation, or military service do not affect this rule.
- He/she also must not have claimed an exclusion on the sale of another home for at least two years prior to the date of the property sale in question.
For married couples hoping to exclude up to $500,000 in profit, the following must also be true:
- The couple must be married and filing jointly.
- EITHER taxpayer must meet the ownership test.
- BOTH taxpayers must meet the use test.
- NEITHER taxpayer has excluded gain from the sale of another property for at least two years.
Have questions about excluding gain from a property sale on your tax return? Talk to Taxation Solutions, Inc. BEFORE you sell to maximize your gain exclusion! We can also help ensure your tax return is filed correctly to avoid tax problems and keep you in the good graces of the IRS. Call now!