As tax season is upon us, I wanted to share some facts that could help save you money on your taxes if you sold your home last year…
If You Did Sell, Was it Your Primary Residence?
If the answer is yes and you made a profit, then the good news is that according to the IRS, you may be able to avoid paying capital gains taxes! Of course you need to know the guidelines to help you figure this out, but in general, here are some factors that are taken into account:
Did you live in the home for 2 out of the past 5 years prior to the sale date? If so, then you may be eligible for an exemption of $250,000 if you are filing single and $500,000 if you are married and filing jointly. This is assuming you did not do a 1031 exchange to acquire the property and that you owned the home for a minimum of 2 out of 5 years prior to the sale. In addition, you did not exclude the gain on another sale for 2 years prior to the sale of your present home.
As always, there are some exceptions to the above requirements such as health conditions, divorce, relocation for work, and military circumstances. If you are not eligible for the full exemption, the good news is that you may be eligible for a partial one.
If you have a larger gain than the exclusion amount, then you can deduct some other fees related to the sale of the home when you prepare your taxes. Some expenses that could be deducted are the real estate agent’s sales commission, any legal fees, advertising fees, and yes, even a professional stager who is hired for the sole purpose of selling your home!
If the Property You Sold Wasn’t Your Primary Residence, Did You Do a Tax-Free Exchange?
If yes, then your capital gains taxes are deferred; however, if you simply cashed out of the real estate market, then make sure you account for the sales expenses such as commissions paid and again staging fees if you hired a staging company to make your property look its best.