Selling a home can be an exciting but stressful time, especially when it comes to taxes. Fortunately, there are several tax advantages available to home sellers that can help ease the burden of taxes. In this article, we’ll explore five tax advantages that home sellers should know about.
- Capital Gains Exclusion
One of the most significant tax advantages available to home sellers is the capital gains exclusion. This exclusion allows home sellers to exclude up to $250,000 ($500,000 for married couples filing jointly) of capital gains from the sale of their primary residence if they have owned and lived in the home for at least two of the last five years.
For example, if you purchased your home for $200,000 and sold it for $450,000, you would have a capital gain of $250,000. If you qualify for the capital gains exclusion, you would not owe any taxes on that gain.
- Deductible Home Selling Expenses
When selling a home, there are many expenses involved, such as real estate commissions, attorney fees, and home inspection costs. These expenses can add up quickly, but the good news is that many of them are deductible.
The IRS allows home sellers to deduct the following expenses:
- Real estate commissions
- Attorney fees
- Title insurance fees
- Escrow fees
- Advertising costs
- Home inspection fees
- Appraisal fees
- Survey fees
It’s essential to keep track of all the expenses you incur when selling your home, as they can add up quickly and help reduce your tax liability.
- Moving Expenses
If you’re selling your home and moving to a new location for work, you may be able to deduct your moving expenses. To qualify, you must meet the following criteria:
- Your new job must be at least 50 miles further from your old home than your old job was.
- You must work full-time for at least 39 weeks in the first year after the move.
If you meet these criteria, you can deduct your moving expenses, including the cost of hiring a moving company, packing supplies, and travel expenses.
- Property Tax Deductions
As a homeowner, you are responsible for paying property taxes on your home. When you sell your home, you may be able to deduct a portion of those property taxes. The amount you can deduct will depend on how long you owned the home and how much you paid in property taxes.
- 1031 Exchange
Finally, if you’re planning on using the proceeds from the sale of your home to purchase another investment property, you may want to consider a 1031 exchange. This exchange allows you to defer paying taxes on the sale of your home if you reinvest the proceeds in another investment property.
To qualify for a 1031 exchange, you must meet the following criteria:
- Both the property you sold and the property you’re purchasing must be used for investment purposes.
- The property you purchase must be of equal or greater value than the property you sold.
- You must identify the replacement property within 45 days of selling your original property.
In conclusion, selling a home can be a stressful time, but there are several tax advantages available to help ease the burden. By taking advantage of the capital gains exclusion, deductible home selling expenses, moving expenses, property tax deductions, and 1031 exchange, you can reduce your tax liability and make the most of your home sale. Be sure to consult with a tax professional to see how these tax advantages may apply to your specific situation.