Sellers Could Be Exempt From Capital Gains Tax
If you sell your home this year and profit big, you could be exempt from capital gains tax.
Married couples filing jointly can claim up to $500,000 dollars in profit
To qualify, you must have owned your home for at least five years and lived in the home for at least two of those five years.
For active duty military, exceptions apply. If you are deployed away from your primary residence, you can suspend the period of residence for an additional five years. That means military members only have to live in a home for two of the last 10 years to qualify for the tax benefits.
If you sell your second home, you only get the tax advantages if you've lived in it for two of the last five years. That
How Much Profit Did I Make?
You know you're eligible. Now, get ready to figure out how much money you made from the sale of your home. You'll need to know the selling price, the amount realized and the adjusted basis.
Selling price refers to the total amount you receive for the sale of your home. That means money -- and also mortgages or other debts that the seller assumes.
The amount realized is the selling price minus selling expenses -- commissions, legal and advertising fees, and mortgage points.
Adjusted basis means increases or decreases you have made to the value of your home. The "basis" is the cost of the home when you first purchased or built it. That includes what you paid for the property, as well as closing costs and settlement fees.
Your home's basis increases when you add home improvements that have a life of more than one year. Repairs and upkeep are not considered improvements. Decreases to your basis include depreciation, insurance payments you received for damages to your home and any home-related tax credits. For more information, see IRS Publication 523.
The amount realized minus the adjusted basis is the gain or loss on your home. If you gain more than the tax-deductible amount, you may be able to further reduce your taxable profit by submitting home improvement receipts with your taxes. Sorry, if you sell at a loss, you can't deduct the difference. But if you did a short sale and your lender forgave any mortgage debt, you can exclude that amount as income.
Always consult your tax advisor. For more information, visit the IRS Web site.