Tax Considerations When Selling a House
Buying a house and selling a house, two of the greatest financial decisions the average person will make in a lifetime….having said that, it follows that the more information a person has prior to buying or selling, the better prepared they will be in making the right decision.
Most people, when selling a home, give immediate attention to things like principal, interest, closing costs, down payment and moving costs. In fact, most people are already looking ahead and beyond the sale to the next living arrangements and honestly, it is natural to do so.
However, as April 15th approaches, it serves as a reminder of other financial considerations attached to selling a house, namely the tax ramifications and tax benefits..
Federal tax law allows a tax exclusion on capital gains for home sellers if they meet certain criteria. The main criteria worth noting is that the seller must have used the home as the primary residence for at least two of the previous five years. This can be a sizeable exclusion, up to $250,000 in profit for single taxpayers and $500,000 for married filing a joint return, but remember that the tax codes change yearly, so check with your accountant for the latest codes.
This exclusion can also be taken more than once but not within two years of taking the exclusion for another house. It is also possible to take partial exclusions due to a job loss, a transfer, illness or other unforeseen circumstances such as divorce.
Also remember that if you do have to claim the sale of your house, you can still adjust the tax basis with regards to capital improvements and depreciation. Again, talk to a professional accountant for the exact nature of deductions.
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