Are You Thinking of Selling Your Home?
You think about it but are concerned about a large capital gain if you have owned your home for several years. You don’t want all of the profit to be spent in paying capital gains’ tax.
Do not fear. There is good news for sellers. When you file your income taxes for the year of the sale, there may be an exclusion for all or part of the gain on the sale.
If during a five-year period ending on the date of the sale, you as the homeowner owned the home and lived in it as your primary residence for at least two years, an exclusion may be available if you meet the ownership and use tests.
If you sell your primary residence, you may be able to exclude up to $250,000 of the gain ($500,000 for taxpayers filing a joint return).
Unfortunately, if you have a second home and sell it, the gain exclusion is available only on your primary residence.
When you sell your home, you should receive a Form 1099-S which is used to report the sale. If you had a mortgage and the balance was not paid at closing or a portion of it was not paid, you must report forgiven or cancelled debt as income on your tax return. This would be as a result of a mortgage workout, foreclosure or other situation. People are often misled that if a debt is cancelled or forgiven, they are free and clear. However, such is not the case.
As with everything, there are exceptions to these rules for certain individuals, such as persons with a disability, certain military members, etc.
If you sell your home and prepare your own taxes, Publication 523 can assist with the calculation of gains and provide other information relative to reporting the sale.
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