10 Things You Need To Know Before You Sell Your Primary Home

HomeThere are a lot of reasons people decide to sell their home. From job changes to life stage transitions or just trying to get closer to family. Regardless of the reason for selling, there is a lot to consider before you move forward.

There are some huge tax benefits to selling your primary home, as well as some things that, while they aren’t benefits, are still important to keep in mind as you consider selling.

Here are 10 things you need to know before you sell your primary home:

  1. If you sell your home at a gain, you may not have to pay taxes on the gain. If you owned and lived in your house for 2 of the last 5 years, you can use the capital gains exemption to exclude up to $250,000 ($500,000 for a married couple) in gain from your taxable income. There are some limits to this. For example, if you used the house as a rental property for a portion of the time you owned it, the value the house gained during that time can’t be excluded when you sell the property.
  2. If you have two houses, only one can be considered your primary residence and have the gain excluded. If you have a vacation home, for instance, you cannot sell it at the same time as you sell your primary home and exclude the gain on both properties. Your primary home is typically the place you get your mail and the address you use on identification and bills.
  3. You don’t have to exclude the gain from a sale. If you plan to sell another primary within two years, you may want to consider claiming the gain on the first sale. You can only claim an exclusion on gain once every two years and depending on the details of the two sales, it may be more beneficial to claim the first sale’s gain as income and exclude the gain on the second sale.
  4. You don’t have to immediately buy another home in order to exclude the gain. The law used to state that in order to claim an exclusion, the gain had to go toward buying another house within two years. This is no longer the rule and you can claim the exclusion regardless of what you plan to do with the money.
  5. In some cases, you don’t have to report the sale on your taxes. You will need to sign a form ahead of time stating that you will not have a taxable gain on the sale of your home, and the closing agent may not submit form 1099-S, which reports the sale to the IRS. If you do receive a 1099-S, you have to report the sale on your taxes, regardless of whether you made a taxable gain.
  6. You cannot deduct a loss on the sale of a home. If you lose money on the sale, this is considered a personal loss and cannot be taken as a deduction.
  7. If you do have to pay taxes on the gain, it may be a long-term capital gain. If you’ve owned the home longer than a year, you qualify for a long-term capital gain, which can lower your tax rate significantly.
  8. If you received a First-Time Homebuyer Credit, you may have to pay it back. The actual amount you could end up owing will depend on when you bought your home. In some cases, like if you don’t make a gain on the sale, you may qualify for an exemption.
  9. The costs of getting the house ready to sell are rarely deductible. The good news is, in most cases, significant repairs increase the value of your house and are added to your cost basis which works in your favor when calculating a gain or loss at the time of sale. While there are some exceptions, like the energy tax credit that you can qualify for when making home improvements to increase energy efficiency, the vast majority of home repair expenses aren’t deductible, no matter how much they cost.
  10. Moving expenses are only deductible when the move is work-related. And even then, there are strict rules about what qualifies and what doesn’t. Moving expenses when the move is for personal reasons – no matter how good those reasons are – are never deductible.

There is a lot that goes into selling a home so if you’re feeling overwhelmed by the sheer amount of information being thrown at you, know that you’re not alone! For more help figuring out the details and preparing financially, contact us today for a referral to a tax professional that can help.

{ 1 comment… read it below or add one }

Brooks August 17, 2018 at 1:25 pm

Thanks, it’s quite informative

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