If you are selling your home, you'll want to understand your tax implications - positive or negative - prior to listing your home for sale. The first thing that you want to do is to consult with your CPA (Certified Public Accountant) for tax advice. Next, a consultation with a real estate agent selling homes in your neighborhood is essential to find out the market value of that home and to understand what you need to do to prepare your home for sale.
On August 8th, 2011, IRS released the newly updated 10 Tax Tips for Individuals Selling Their Homes which you can find on the IRS Summertime Tax Tip 2011-15.
Here are the selling tips from the IRS to keep in mind:
- In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
- If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
- You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
- If you can exclude all of the gain, you do not need to report the sale on your tax return.
- If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
- You cannot deduct a loss from the sale of your main home.
- Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
- If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
- If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
- When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.
Please note that this article is not meant to offer legal or tax advice and that you should consult your accountant for specific tax advice. When it comes time to sell your Pasadena area home and you need a real estate consultation, give us a call at 626-629-8439 for a free and private analysis of your house's worth, real estate market conditions and the suggested marketing plan.
READ MORE: Pasadena California Real Estate Guide