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Tax Information for Sellers Please Note: The following is designed to provide potential home sellers with generic tax-related tips and information. Each homeowner’s tax situation is unique, so we advise consulting with a tax professional to get the most from owning and selling real estate. The U.S. Government offers homeowners many tax advantages, most notably mortgage interest and property tax deductions. There are tax advantages available specifically for home sellers as well, some you may not even know about! Taxpayer Relief Act
Internal Revenue Code Section 121 authorizes “exclusion”  – escape from income taxes - for profits from home sales; up to $500,000 for married couples who file joint tax returns, $250,000 for single filers or couples who file taxes separately. This means that most people do not have to pay taxes on the money they have made from selling their home unless the gain is very large. Signed by Bill Clinton in 1997, this Taxpayer Relief Act eases the home-sale tax burden for millions of residential tax payers. Unlike its predecessors, this taxpayer relief act also allows home sellers the freedom of spending the proceeds of their home sale on anything they would like; it does not require the tax-free earnings to go towards the purchase of another home. Eligibility
There are two eligibility requirements homeowners must meet in order to qualify for this tax break: 1) The title holder(s) must own and live in the property as a primary residence for periods of time equaling at least 2 years within a span of 5 years ending on the date of your sale, and 2) at least 2 years must have elapsed since you last used this exclusion. This means you could live in the house for a year, rent it for two years, move back in as your primary residence for a year, sell it and be protected by the tax exclusion. The IRS offers a “Use and Ownership Test” that evaluates individual situations. While there is technically no limit on the number of homes you can sell and reap tax-free gains on, each sale must be at least 2 years apart. What if you sell before meeting the ownership and residency requirements? The IRS provides some tax relief if the sale is because of a change in health, employment or other unforeseen circumstance. In most cases however, you owe tax on any profit. Keep in mind though that all selling costs are deducted from your taxable capital gain. Broker’s commissions, title insurance, legal fees, advertising costs, administrative costs and inspection fees are all considered selling costs. Decorating and repairs like painting, planting flowers, maintenance, etc. are also recognized as selling costs by the IRS if you complete them within 90 days of your sale and with the intention of making the home more saleable. For more information about selling your home and reaping the tax benefits, contact Debbie Dogrul Associates at 703-425-3582 or email to find out more about the benefits of selling your home in today’s market. If necessary, we can also refer you to a qualified financial advisor.
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