Top IRS Tax Tips For Sellers In A Hot Market
Even though April 15 recently passed, many homeowners applied for extensions and some failed to file. Those same homeowners may wish to jump into the hot real estate sellers market, but before doing so homeowners might wish to consider some of these top IRS tax tips.
Of course, it may be best to consult a CPA, tax attorney, or Enrolled Agent to discuss any possible tax consequences before diving into the market.
1. 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.
2. 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).
3. 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.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. 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.
6. You cannot deduct a loss from the sale of your main home.
7. 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.
8. 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.
9. 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.
10. 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.
Short Sale Tax Consequences
Of course, if you are not fortunate enough to have oceans of equity and you find you home underwater, then a short sale may be the best option. The same consideration should be given to any possible tax consequences or a short sale or foreclosure. Not all tax professionals have specific knowledge of dealing with short sales, foreclosures and the like.
Feel free to hit us up for professional tax referrals.