Tax Checklist when Selling Your Home

Property sales can sometimes result in complicated tax situations. When preparing to sell your home, keep this checklist handy to help prepare you for any potential tax consequence.

Excluded Gain?

How long the home has been your primary residence? As long as your home was used as your primary residence (not a vacation home or secondary residence) for at least two out of the past five years leading up to the sale, you will likely be eligible to exclude the capital gains, up to $250,000 for individuals; $500,000 for married couples when filing jointly.

The Purchase Price of Your Home

When calculating the capital gains on the sale of your home, make sure to use the full cost basis of the house. This includes, not just your purchase price, but also any closing costs or other expenses that were a condition of the purchase (such as deed recording and stamps). If you built your home, you can use the cost of building supplies, contractors, permits, surveying and other associated expenses as well.

Significant Home Improvements & Additions

Maintaining your home, such as adding a fresh coat of paint or making repairs should not be used in calculating the basis of your home. However, if you made significant improvements such as adding a bedroom/bathroom, building an outdoor deck, or adding an in-ground pool, these can be included in your basis calculation.

Home Office Deduction

If you are self-employed or own a small business and work from home you may be able to deduct expenses for your home office. In this instance, homeowners can benefit even more than renters.

Homeowners can depreciate a portion of the purchase price of their home, interest expense, utilities, and more. However, when you sell your home, you may be required to pay what’s called a recapture tax on the depreciation that was deducted against the purchase price. Also in certain situations, when your home is also used for business, you also may be disqualified from claiming the capital gains exclusion on your home's sale. When using our software, we can help you determine if you are eligible to claim the income tax exclusion on the proceeds of your home sale or not.

Expenses Related to a Sale

Any expenses related to your home sale can be used to calculate your net capital gain. Real estate broker commissions, if you bear the cost of the doc stamps, transfer taxes or legal fees are all expenses that can help reduce your stated capital gain and therefore the taxes you will pay.

First-Time Homebuyer Tax Credit

If you bought a home and took advantage of the First-Time Homebuyer Credit, you may have to repay this credit along with certain federal mortgage subsidies. In this case, repayment is typically made when filing your federal income taxes according to either the general or accelerated repayment schedule. More can be found on this topic here.

For more on the tax implications of selling your home, please see the following:

Tax Implications of Selling a Home
Tax Benefits of Home Ownership

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