Tax,Rules,for,Home,Sellers,199 finance, share, loan Tax Rules for Home Sellers
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In 1997 new tax rules for home sellers were introduced contained in section 121 of the tax code. The new tax changes were: 1. If you are not married, when you sell your home the first $250,000 of your profits are tax free. 2. If an unmarried couple jointly own the home each person qualifies for the $250,000 exclusion. 3. Married taxpayers can receive up to $500,000 of their profits tax free To be able to qualify for these tax breaks, the property that you own must be classed as your principal residence This means that youve owned the home for at least two of the five years prior to the sale, and that you have lived in the home for at least two of the five years prior to sale. It is also important to note that you can only benefit from this tax break if you have not used the $250/500k exclusion within the last two years. These new rules for homesellers are extremely generous, for reasons being: 1. The $250k/$500k exclusion is a permanent tax-free amount, not a deferral. 2. You can use it every two years. This means you can move to a better and bigger home every couple of years possibly without paying one cent in tax on your real estate profits. 3. If you eventually decide to downsize you can release a big tax free cash sum of up to half a million dollars. Example 1 Heres the simplest application of the rules imaginable. Rick purchased his home two years ago and has been living in it ever since. He has never sold any other homes. If he sells now he will qualify for the maximum exclusion because he has owned and lived in the property for two years and has not excluded any other gains in previous years. It may also be worth pointing out that the period of ownership and use do not have to overlap: Example 2 Bill rents his apartment for two years before buying it. Immediately after purchasing it he moves into a bigger house but decides to keep the apartment. Two years later he can sell it and claim the $250k exclusion. Why? Because he has owned and lived in the property for two years in the five year period prior to the sale. Its important to understand that you dont have to live in the property continually for two years to qualify. If the property is your main home in years one and five, for example, you will still qualify. You also dont have to live in the property for whole years or months the IRS is happy if you measure your occupation in days 720 days are required in total. Short temporary absences are also permitted. For example a three month holiday would probably not affect the time you have lived in the property. However a one year sabbatical during which you live away from home would probably not be counted as a period of occupation. To conclude you can see that there are massive potential savings to be made when selling your home if you know the proper correct and strategies to use.
Tax,Rules,for,Home,Sellers,199