One of the most commonly-asked questions for those planning on selling a home involves tax considerations. The sad truth, however, is that there’s no simple answer to this very important question. Most tax implications use many specific details including the profits obtained, location of the property, your age and more. However, four basic areas impact sellers’ taxable income and liabilities. Below, we list important notes for sellers regarding tax implications.
The Rule of two-out-of-five and $250,000 Exclusion
Back in 1997, the United States Federal Government passed a new homeowner tax program that has provided many US taxpayers with an actual positive incentive to sell their properties without having to pay large capital gains taxes. Known as the 2-out-of-5 rule, it permits homeowners as much as $250,000 for exclusions in profit from the sale of a primary residence for individuals, or $500,000 for married couples. The basic requirement is that you must follow these important standards:
Some of the Exceptions to the two-out-of-five rule
As we stated above, some exceptions to this rule exist. These exceptions allow you to take advantage of this tax consideration and can include:
There are several smaller tax considerations that any home seller should consider including closing costs, paying taxes on interest for loans, moving expenses and other ancillary potential deductions. A great resource of information is to visit irs.gov to get detailed answers for any questions you might have on the tax considerations on the sale of your property.
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