It’s almost that time of year… yes, tax season is almost upon us! If you are selling a house in Summerville, you will love these tax tips for selling your home! This article is for informational purposes only!
For specific questions, contact a trusted tax professional, or the IRS!
Not All Profits Are Taxable
You will be able to exclude a high portion of your profits so long as certain conditions are met. Typically, you will be able to exclude $250,000 from your tax return, and up to $500,000 if filing a joint return. (However, if you sell for a loss, you won’t be able to take a deduction for that amount.)
The deduction is only available when selling your primary residence, and can only be used once every two years. To qualify for the deduction, you must have lived in the residence for at least two of the past five years.
It is important that whenever you move, your address is updated with the IRS.
Other Exclusions
If you do not meet the typical requirements for excluding all of your profits from your income tax, there may still be a way to reduce your tax burden. The IRS provides specific conditions that could allow you to exclude a portion of your gain from the sale of your home, especially in unique situations. For example, if you are selling your home due to a significant life change, such as a health issue, job relocation, or other unforeseen circumstances, you might qualify for a prorated, tax-free gain. This means you won’t be taxed on the full amount of your profit, but rather a portion of it, depending on your situation.
It’s important to be aware that these exceptions can be tricky, and the criteria are often based on your personal circumstances. If you believe you might qualify for such exemptions, it’s a good idea to consult with a tax professional who can help guide you through the process. They can help ensure that you maximize your potential tax savings and keep more of your profit. Every situation is unique, and with the right professional assistance, you can determine the best course of action to minimize your tax liability when selling your home.
Reporting the Sale
If you receive a 1099-S form from the closing agent, you are required to report the sale to the IRS. This form details the proceeds from your real estate transaction, and the IRS uses it to keep track of any taxable gains. To avoid having to file this form, you will need to ensure that you can exclude all of the profits from your income tax. If you’re eligible to exclude the profits, you can inform the closing agent beforehand that the 1099-S form does not need to be issued. This way, you can avoid unnecessary paperwork and prevent additional complications in the process.
However, even if you qualify to exclude the profits and don’t owe any tax, you still must file the 1099-S form with the IRS if it is issued. This requirement stands regardless of whether you owe money or not. It’s important to keep track of all necessary documentation, as failing to file the form when required could lead to penalties or issues with the IRS. Always check with your closing agent and tax professional to ensure everything is properly handled and that you comply with IRS reporting requirements.
Capital Gains Taxes
If you’re selling an investment property or a house you’ve owned for a short period, you will likely face capital gains taxes on the profit from the sale. The amount you’ll owe depends largely on your taxable income. For those in a lower income bracket, the good news is that you might not have to pay any capital gains taxes at all. However, if your income places you in a higher tax bracket, you could be subject to a capital gains tax of up to 20%. The rate varies based on your overall income, so it’s important to understand your financial situation when planning your sale.
For short-term assets, such as properties you’ve owned for less than a year, the capital gains are typically taxed as ordinary income. This means that any profit made from the sale will be taxed at the same rate as your regular earnings, which can be a significant hit depending on your income level. Long-term capital gains, on the other hand, are usually taxed at a more favorable rate. When selling your investment property or house, it’s wise to consult with a tax professional to ensure you’re prepared for the tax implications and understand what your obligations will be after the sale.
First-Time Homebuyer Credit
If you received a tax credit when purchasing your home, be aware that you may need to repay all or part of that credit upon selling, depending on the timing of your sale. Typically, if you sell the home within 36 months of purchasing it, the credit must be repaid to the IRS. This rule is designed to discourage quick turnovers, and it can significantly impact your profits from the sale. Therefore, it’s essential to factor this potential repayment into your financial planning when deciding when to sell, as it could affect the overall proceeds from your home sale. Be sure to consult a tax professional to fully understand the specifics of how this may apply to your situation. Special rules apply and can be found in Publication 523 from the IRS.
Deduct Selling Costs
When selling your Summerville house, you will be able to deduct any reasonable cost when selling your home. This includes the closing costs, improvements made in order to sell the house, assessments, marketing costs, agent fees and so on. Keep track of every cent you spend in an effort to sell your home. Come tax time, this can amount to major deductions!
No matter what time of the year you sell, it is always important to seek the counsel of professionals. Consult your agent, accountant, and attorney to make sure you have set up the best terms for yourself.
Don’t stress too much about taxes when putting your house up for sale in Summerville. Odds are Uncle Sam won’t be getting his hands on your profits.