When you sell your home, you may see some tax benefits and consequences depending on your situation. For some, sellers may see tax breaks, and for others, they may have to pay more taxes. Here are some common tax benefits and consequences of selling your home:
You May be Eligible for Deductions & Tax Breaks
The great part of selling your home is that you may be eligible for a variety of deductions and tax breaks. For example, you may be able to take out property tax deductions from the part of the year you owned your home up to, but not including, the date of sale. Other deductions can include:
- Any home improvements made to help sell the home.
- Moving expenses if you have to relocate for work.
Remember, in order to be eligible for these breaks, make sure you remember to deduct all of your selling costs from your gain. Otherwise, you will owe taxes on any profit you make. Common selling costs include:
- Legal fees
- Inspection fees
- Real estate broker commissions
- Escrow fees
You May Have to Pay a Capital Gains Tax
Selling your home often doesn’t require you to pay taxes on any profit you make, also known as the capital gains tax. However, there are some rules regarding whether or not you are excluded from paying capital gains tax:
- Profits from the sale must not exceed $250,000.
- The home must have been your primary residence and owned by you for at least two of the five years prior to the date of sale.
- You haven’t excluded any gains from a previous home sale in the two year period before the current sale.
If you are married and filing taxes together, you can exclude up to $500,000 but at least one of you must meet the ownership requirements. In addition, both of you must have been living in the home as your primary residence for two of the five years before selling the home. If you and your spouse are divorced and you retain ownership of the home, you can count the time the home was owned by your former spouse in order to pass the “two out of five years” requirement.
As with all taxes, they can vary from state to state and change at a moment’s notice. It is highly recommended that you consult with your accountant or other trusted financial advisors to make sure you are eligible for any tax benefits.