Always consult an expert
on taxes before you make financial decisions
based on tax deductions or tax laws as they
change very often.
If you sell your home, apartment or duplex,
for a profit, don't jump too quickly to the
conclusion that you'll be taxed for your gains.
You might be surprised to find otherwise. Also,
some of those out-of-pocket fees you paid in
the process of selling your property will work
to your financial advantage.
This is the good news: You won't be taxed or
even required to report the sale of your home
unless your gain is more than $250,000 ($500,000
if married filing a joint return). This is called
the exclusion rule, and it applies only if you've
owned the home for at least two of the last
five years leading up to the sale, and lived
in the house as your main home for at least
two of the last five years.
It's not the amount of money you receive for
the sale of your home that determines whether
you'll have to include any proceeds as taxable
income, but the amount of gain on the sale over
your cost, or basis.
If you can exclude all of the gain, you won't
need to report the sale on your tax return.
(You will likely receive a notice from the IRS
requesting information to show your entitlement
to the exclusion.) Generally, you may claim
this exclusion only once in any two-year period.
If you sell your home for a profit in excess
of the $250,000 limit, the additional amount
is taxed as long-term capital gain.
to the Rules
Even if you don't meet the two-year rules (they're
called "ownership" and "use"
tests), the IRS says there are some cases in
which it will make exceptions and all the exclusion.
But, the maximum amount you can exclude will
be reduced. For example, the IRS says it will
allow a reduced exclusion if you did not meet
the "ownership" and "use"
tests on a home you sold due to health reasons,
a change in place of employment, or an "unforeseen
circumstance." Also, the IRS says that
if you did not live in your home the required
two years during the five-year period and are
a member of the uniformed services or Foreign
Service, it may still make an exception and
grant an exclusion.
If you realize a loss on the sale of your home,
the loss is not deductible. And if your home
is sold in a bank foreclosure or repossession,
that's treated the same as a sale, meaning you,
as the borrower/seller, may realize gain or
The "points" you paid to get the loan
on the house you're selling are generally deductible
the year you paid them. But if you haven't deducted
all the points you paid to secure a mortgage
on the home, you may be able to deduct the remaining
points in the year of sale. One example is if
you were deducting points paid on a loan on
the home you're selling over the life of the
loan, you may be able to deduct any points you
hadn't deducted in prior years. ("Points"
includes loan placement fees, and are also called
loan origination fees, maximum loan charges,
loan discount or discount points.)
If you're buying another home and took out
a new loan, you'll be able to deduct points
(and interest) on your new loan, any remaining
points left on the old home, and the real estate
taxes paid on both homes. Real estate taxes
are usually divided so that the seller and buyer
each pay taxes for the part of the property
tax year that each owned the home.
Though they may not be taken as tax deductions
on your return, your selling expenses -- such
as commissions, advertising fees and legal fees,
and even points, can be used to reduce the gain
on the home you're selling.