VITAL TAX TIPS FOR SELLING YOUR HOUSE
Selling a house is not as easy as it seems. Apart from repairing vital elements to improve curb appeal and increase your home’s resale value, you also need to be aware of the tax considerations. Remember to check our blog on the essential things you should repair before listing your house to learn more.
There is so much you need to know when it comes to taxes to maximize the tax gains. You have to learn how to calculate the profits, determine the expenses, and learn how to file your returns. Fortunately for you, we will take you through everything you need to know about tax when selling your house.
Keep reading to discover vital tax tips when selling your house.
1. YOUR GAINS DO NOT HAVE TO BE TAXED
To begin with, you need to know that most gains are not taxable. However, various factors will determine the amount that will be taxed. In most cases, you will not be taxed for profits less than $250,000. Married couples can exclude profits of less than $500,000. The following are some of the instances when you will get a tax break:
· When selling a house you have been living in for more than two years in the five years before you decide to put your house on the market.
· You also qualify for these exclusions if your house was not acquired through an exchange in the last five years.
· Owners who have not asked for exclusion in the last two years before putting their house on the market also qualify for the exclusion.
Married couples who want to get the $5000,000 exclusion should meet the following qualifications:
· They must file a joint return.
· Both or one of the couples must have owned and lived in the property for more than two years in the last five years before the house was listed.
You will be glad to know that you can still qualify for a tax break even if you fail to meet these qualifications. Read on to discover exceptional circumstances that will allow you to get partial or complete exclusion:
· You are eligible for a tax break if you have acquired the house through a divorce settlement provided that your former spouse owned and lived in the property for more than two years in the last five years.
· Moreover, you can still consider short absences, including when you rented your property, as the number of years you have lived in that home.
· In the case that one of the spouses stills owns part of the house after a divorce, he or she will be excluded if the other spouse lives in the house for at least two years in the last five years.
· If one of the spouses dies and the other one is yet to remarry, he or she qualifies for exclusion so long as the deceased spouse had lived in the house for more than two years in the last five years.
MEMBERS OF THE DISCIPLINED FORCES, INTELLIGENCE AND FOREIGN AGENCIES ARE ELIGIBLE FOR EXCLUSIONS
Are you a member of the uniformed services, intelligence agencies, or foreign services? If you are, you will be glad to know that you are eligible for tax breaks. To begin with, you will be exempted from taxation if you have owned and lived in your house for more than two years in the last five years. Apart from that, you also qualify for exclusions if you or your spouse has been away on official business. However, you have to meet the following guidelines to qualify:
· You must be serving in a station that is more than 50 years from your house.
· You have been residing in official government premises due to official orders.
HOW TO QUALIFY FOR A REDUCED EXCLUSION?
Are you afraid that you will not qualify for the exclusion because you have not lived in your property for more than two years in the last five years? You will be glad to know that you can still qualify for a tax break provided you meet the following qualifications:
· A sudden change of employment.
· Deteriorating health.
· Giving birth to multiple babies from one pregnancy.
· You are going through a rough patch in your life.
It is important to note that reduced exclusions mean that you will get less than the full inclusion. To help you understand, you and your partner will get up to $250,000if you have been living in your house for more than one and half years.
SHOULD YOU TAKE THE EXCLUSION?
Most buyers are guilty of taking the exclusion quickly without thinking it through. While there is no problem with taking advantage of the government’s generosity. It helps to take the time to think things through. Obviously, taking exclusion should not be a problem if you do not plan to sell another house within two years. However, it would be advisable to avoid the exclusion if you will be selling another profitable house within the next two years. This is the case because you can only use the exclusion once in two years.
SHOULD YOU REPORT THE SALE ON YOUR TAX RETURN?
It is mandatory to report your home’s sale on form 1099-S if you do not meet the qualifications discussed above. This form will be provided by the closing agent, who can be a real estate agent, title company, property investor, or mortgage lender. This means that you will have to prove to the agent that the proceeds from your house’s sale are not taxable.
HOW TO CALCULATE GAINS FROM THE SALE OF YOUR HOUSE
It would help to learn how to calculate profits after selling your house. Generally speaking, you will earn a gain if you sell your house for more than the buying price. However, it goes beyond that when it comes to tax. You should determine the adjusted basis to calculate your gain or loss when it comes to tax purposes.
So how do I calculate my adjusted basis? All you will have to do is determine the total amount of money you have put into the house, including the cost of renovations and the installation of new features. You should divide this amount by the amount of deductions you have taken.
Calculating all the taxes you are required to pay when selling your house can be challenging. The good news is that you do not have to go through this daunting process when you sell your home to an investor who buys houses quickly.