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12 Tax Tips When You Sell Your Home

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If you sell a home at a profit in today's market, you may not have to pay tax on the gain. It's important to know the rules, however, to determine if you must report the sale of your home and any gain from the sale.

  1. If you sell your home at a gain, you may not have to include the gain in your taxable income.

    As long as you meet certain qualifications, you may be able to exclude up to $250,000 in gain from selling your home. If you're married, you may be able to exclude up to $500,000 in gain.

  2. In some cases, you do not have to report the sale of your home on your tax return.

    When you sell your home, you may sign a form stating that you will not have a taxable gain on the sale of your home and for other information. If you sign this form, the closing agent may not send Form 1099-S Proceeds From Real Estate Transactions, which reports the sale to the IRS and to you.

    If you do receive Form 1099-S, you must report the sale of your home on your tax return, even if you do not have to pay tax on any gain.

  3. You must meet all of these qualifications to exclude the gain from the sale of your home from income:
    • You must own the property for at least two of the previous five years.
    • You must live in the property for at least two of the previous five years.
    • You must not have excluded the gain from a home during the two-year period prior to the sale of your home.
  4. You cannot deduct any loss on the sale of your home.

    If you sell your house at a loss, it is considered a personal loss. You cannot take a deduction.

  5. If you must pay tax on the gain from the sale of your home, the gain may be a long-term capital gain.

    You must own the home longer than one year for the gain to qualify as a long-term capital gain.

  6. Long-term capital gains rates are lower than the ordinary tax rates you pay on short-term gains.

    Long-term capital gains tax rates for 2013 are 0%, 15%, or 20%, depending on your income tax bracket. Ordinary income tax rates for 2013 range from 10% to 39.6%.

    High-income taxpayers must pay an additional 3.8% tax on net investment income, including any gain from the sale of a residence that is not excluded from income. For this purpose, a high-income taxpayer is a taxpayer with a modified adjusted gross income of more than $200,000 ($250,000 if married filing jointly, or $125,000 if married filing separately).

  7. If you received the First-Time Homebuyer Credit when you purchased your home, you may have to pay some or all of it back.

    If you purchased the home in 2008, when you sell you generally must pay back any credit that you have not paid back already.

    If you purchased the home in 2009 or 2010, and you sold the home or stopped living it before the end of 36 months, you may be required to pay back the credit.

    You must pay back the smaller of these two amounts:

    • Your gain on the sale of the home
    • The amount of your credit reduced by any repayments, if the credit was from 2008
    • The amount of credit you received, if the credit was from 2009 or 2010

    In either case, you may qualify for an exception to paying back the credit if you have no gain on the sale of the home or in certain other circumstances.

  8. If you live in two homes, only one of them is your main home for purposes of excluding a gain from your income.

    You can only exclude the gain from your main home. Your main home is the place you live most of the time.

    If you have more than one home, your main home is generally the place you receive your mail, and the address you have on your identification and bills. You can also consider where you bank and where you are members of clubs and religious organizations to determine which house is your main home.

  9. If you didn't live in the home the entire time you owned it, you may have to pay tax on part of the gain.

    If your house went up in value when you were not living in it; for example, when you used the property as a rental house, you cannot exclude gain from the time you rented it out. For determining the amount of the gain you cannot exclude, the property is assumed to have gone up in value evenly over the period of time you owed it.

  10. You can choose not to exclude the gain from a sale.

    If you expect to sell another main home within two years, you may want to consider claiming the gain on sale of your current main home instead of excluding the gain. You can only claim an exclusion on the sale of your main home once every two years. Depending on your specific sale, it may be more beneficial to claim the current gain as income and use the exclusion on the future sale of your main home.

  11. You don't have to buy a home of greater value, or any other home, to exclude this gain.

    There are no longer any requirements to buy another home after you sell in order to exclude the gain from the sale of your home.

  12. Remember to update your address with the IRS by filing Form 8822, Change of Address when you move.

    This is especially important if you are expecting correspondence from the IRS, such as a tax refund in the mail.