Real Estate Tax Tips for Homeowners: Selling Your Residence

Selling a home can be a complex process, with many tax implications to consider. The IRS provides several tax tips for homeowners to help you navigate the sale of your residence and stay compliant with your tax obligations.

Understanding the Tax Implications of Selling Your Residence

When you sell your home, you may be subject to capital gains taxes on any profit you make from the sale. However, there are several factors that can impact whether or not you owe capital gains taxes on the sale of your residence.

For example, if you’ve owned and lived in the home as your primary residence for at least two of the last five years, you may be able to exclude up to $250,000 of any capital gains from the sale if you’re a single taxpayer, or up to $500,000 if you’re married and filing jointly.

It’s important to keep in mind that the exclusion only applies to the sale of your primary residence, and there are several other factors that can impact your eligibility for the exclusion. The IRS provides a worksheet in Publication 523 to help you calculate your potential capital gains tax liability.

Understanding the Basis of Your Residence

Your home’s basis is the amount of money you’ve invested in the property, including the purchase price, closing costs, and any major improvements or renovations you’ve made. The basis of your home is important when calculating your capital gains tax liability.

If you’ve made significant improvements to your home, such as adding a new addition or upgrading the kitchen, you may be able to add those costs to your basis and reduce your potential capital gains tax liability.

Keeping Accurate Records

As with any real estate transaction, it’s important to keep accurate records of all your home-related expenses and income. This includes records of your home purchase, any major improvements or renovations, and the sale of your home.

Keeping detailed records can help you accurately calculate your basis and potential capital gains tax liability, and it can also help you take advantage of available tax benefits and deductions.

Consult with a Tax Professional

Selling a home can be a complicated process, and it’s important to consult with a tax professional if you have any questions or concerns about your tax obligations. A tax professional can help you understand your eligibility for the capital gains tax exclusion, and can help you take advantage of available tax benefits and deductions.

By following these real estate tax tips for homeowners, you can navigate the sale of your residence and minimize your tax liability. Remember to keep accurate records of all your home-related expenses and income, and consult with a tax professional if you have any questions or concerns.