2nd Quarter 2019

Key Tax Rules When Selling Your House

Long before the for-sale sign goes up, it’s important to understand the tax consequences, key deadlines, and records you should be gathering to help reduce any tax bill on profits from the sale of your home.

If you’ve lived in the house for at least two out of the past five years, then you can exclude up to $250,000 in home-sale profits if you’re single, or $500,000 if you’re married filing jointly. If you haven’t lived there that long, you may qualify for a partial exclusion (based on the number of months you did live in the house) if:

  • You moved because of your job (if your new work location is more than 50 miles farther from home than your old work location).
  • Or you moved because of a health issue or certain other unforeseeable events.

If your home-sale profits are larger than the exclusion — or if you don’t qualify for an exclusion — you may be able to reduce your tax liability by knowing what costs you can add to your basis. Typically, the basis is usually what you paid for the house — plus some other expenses — that you subtract from the sale proceeds to determine the taxable amount. You can add the cost of major home improvements to the basis, for example, so it’s important to keep receipts of any renovations or additions you’ve made to your house over the years. You can also add many fees and closing costs to your basis. For more information, see IRS Publication 523, Selling Your Home, at www.irs.gov.

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