VIEWpoint Issue 1 | 2019
2018-2019 Tax Planning Guide
VIEWpoint Issue 2 | 2018
IRS Proposes Withholding Tax on Retirement Plan Distributions for...
Trump Signs Bipartisan IRS Reform Legislation into Law
The Tax Implications of Being a Winner
Spring and summer are the optimum seasons for selling a home. And interest rates are currently attractive, so buyers may be out in full force in your area. Freddie Mac reports that the average 30-year fixed mortgage rate was 4.14 percent during the week of May 2, 2019, while the 15-year mortgage rate was 3.6 percent. This is down 0.41 and 0.43 percent, respectively, from a year earlier.
But before you contact a realtor to sell your home, you should review the tax considerations.
If youâ€™re selling your principal residence, and you meet certain requirements, you can exclude up to $250,000 ($500,000 for joint filers) of gain. Gain that qualifies for the exclusion is also excluded from the 3.8 percent net investment income tax.
To qualify for the exclusion, you must meet these tests:
In addition, you canâ€™t use the exclusion more than once every two years.
What if youâ€™re fortunate enough to have more than $250,000/$500,000 of profit when selling your home? Any gain that doesnâ€™t qualify for the exclusion generally will be taxed at your long-term capital gains rate, provided you owned the home for at least a year. If you didnâ€™t, the gain will be considered short term and subject to your ordinary-income rate, which could be more than double your long-term rate.
Here are some additional tax considerations when selling a home:
Keep track of your basis. To support an accurate tax basis, be sure to maintain thorough records, including information on your original cost and subsequent improvements, reduced by any casualty losses and depreciation claimed based on business use.
Be aware that you canâ€™t deduct a loss. If you sell your principal residence at a loss, it generally isnâ€™t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.
If youâ€™re selling a second home (for example, a vacation home), be aware that it wonâ€™t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.
Your home is probably your largest investment. So before selling it, make sure you understand the tax implications. Doeren Mayhewâ€™s tax advisors can help you plan ahead to minimize taxes and answer any questions you have about your situation. Contact us today.
A quick registration is required to view our resources.
You will only be asked to do this one time (unless you don't save your browser cookies).