Selling Your Home?

Did you know that selling your home may have income tax implications?  Here are a few facts to keep in mind when you sell your home.  As always – remember to let your CPA know!

1. The IRS allows you to exclude up to $250,000 ($500,000 for married couples filing jointly) of gain on the sale of your primary residence.  To qualify for this exclusion, you must have owned and lived in the home as your main residence for at least 2 out of the last 5 years prior to sale.  There are exceptions to this rule if you become disabled, are a member of the military or if your previous home was destroyed or condemned.
2. Do you remember what you paid to purchase your home?  You should keep a folder for your closing documents and records of any capital improvements** you make to your home over the years.  This will make it much easier for your CPA to calculate your basis in the home when you sell it.
3. Any gain that is excluded will not be subject to the Net Investment Income Tax.
4. If the total gain is excluded, then the sale may not need to be reported on your tax return.  It is best to give your CPA all the relative information about the sale and let him or her guide you through the reporting requirements.  
5. This exclusion may normally be claimed only once every two years.
6. If you own more than one home, keep in mind that this exclusion is only available on the sale of your main home.
7. Did you claim a first time homebuyer credit when you purchased your home?  Let your CPA know if you did, because there special calculations that may apply.
8. Losses on the sale of your main home are not deductible on your tax return.
9. File Form 8822 to notify the IRS of new address.  The form is available at the IRS website http://www.irs.gov/pub/irs-pdf/f8822.pdf.

** Capital Improvements increase your cost basis and result in lower taxable gain upon sale.  Some examples of capital improvements include but are not limited to: additions of bathroom, kitchen, deck, patio, fencing, driveway, sprinkler system, windows, doors, roofs, HVAC systems, built-in appliances, flooring, insulation.