Selling your home while the market looks good? You’ll likely make a nifty profit, but the profit may be subject to the capital gains tax. Did you know some or maybe ALL of that capital gain on your home sale may be excluded? By excluding that capital gain on the sale of a home, you potentially pay less in your income tax! To be eligible for this exclusion, there are some criteria to meet.
Qualifying for the Exclusion
In order to be able to exclude the gain on the sale of a home, tests of ownership & use must be met:
- The home must have been the principal residence of the taxpayer. For example, rental properties sold off will not qualify.
- The taxpayer must have occupied the home for 2 of the past 5 years. The 2 years do not need to be consecutive but the total amount of days occupied in the span of that 5 years should be 2 years.
- The taxpayers should not have claimed the home sale gain exclusion within 2 years of the sale of another home (the “once-every-two-years limit”).
Claim the Gain
The gain can be claimed when the Form 1099-S is received after the home is sold. Currently, up to $250,000 for a single filer can be claimed, and up to $500,000 for a married, filing jointly couple. Recently widowed taxpayers may also claim the full exclusion. Even if your home sale may not meet all the criteria to claim the full exclusion, a partial exclusion may also be available to taxpayers depending on the circumstances of the move such as for work, a health-related relocation, or unforeseen events like the home being destroyed in a disaster.
The rules surrounding income tax can get complex, but knowledgeable persons take advantage of the unique pieces that exist in it, such as the home sale exclusion. With the right knowledge and planning, individuals and small business owners can make the most of their annual tax filing. MiklosCPA provides that right knowledge and accounting support for many individuals and emerging businesses. We have helped business owners in assorted fields with their accounting and taxation needs, freeing them up to focus on their most important goal, growth. Learn more how our knowledge can empower your business goals through our services by giving us a call.
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