Tax Rules When Selling Your Home

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Written by Ronald Oddo | Posted in Family Tax • United States

How the gains from the sale of a primary residence are taxed has changed in recent years. If you have recently sold your home, or are considering doing so, you may want to be aware of some of these tax rules.

Home Sale

If you owned and lived in your home for two of the last five years before the sale, then up to $250,000 of profit may be exempt from federal income taxes. If you are married and file a joint return, then it doubles to $500,000.

To qualify for this exemption, you cannot have excluded the gain on the sale of another home within two years to this sale. Please consult a professional with tax expertise regarding your individual situation.

This profit would be excluded from your taxable income. In fact, the sale may not need to be reported unless you receive a Form 1099-S or do not meet the above requirements.

If you sold your home at a loss, unfortunately, you can’t deduct the loss.

There Are Exceptions

Even if you do not meet the above requirements, you may qualify for this exclusion:

If you receive the house in a divorce settlement,
If you are able to count short-term absences as time lived in the house,
If a surviving spouse who has not remarried can count the time that the deceased spouse lived in the house.

The five-year test period can also be suspended for up to ten years in cases where any spouse has served on “qualified official extended duty” as a member of the military, foreign service, or federal intelligence agencies.

Even if you don’t pass the five-year rule test, a reduced exclusion may be available if you have a change in employment or health, or because of unforeseen circumstances, such as divorce or multiple births from a single pregnancy. Please speak with a professional with tax expertise regarding your situation.

Ronald Oddo

Certified Exit Planner with more than 28 years of experience preparing business owners for the day they will exit from their business. I am qualified to provide this needed service to business owners based on my education, experience, knowledge and skills. I have earned and maintain nine business related certifications and six security licenses. In addition, I am a Federally Licensed Tax Practitioner with the privilege of representing troubled taxpayers before the IRS. To stay as current as possible I enjoy membership in 17 professional associations. On a day-to-day basis I manage a fully staffed tax, accounting and financial planning practice which provides all of the resources for our Exit Planning Clients.

My definition of Exit Planning is the preparation for the exit of a business owner from the company, with an emphasis on maximizing the enterprise value of the company. Exit planning also embraces a path toward non-financial objectives including the transition of the company to the next generation, sale to employees or management, or other altruistic, non-financial objectives.

My mission is to help you create a comprehensive road map that will accomplish your personal and financial goals when you decide to leave the business. As your Exit Plan advisor I will bring together a team of experts in Taxation, Law, Financial Planning, Estate Planning and Investment Banking that will guarantee that you will exit your business in style.