Serving Greater Greenville Area, Spartanburg, Anderson, Pickens, Oconee Real Estate
Susanne Case
Phone: 864-
Fax: 864-
Red Door Realty
Gateway to the Upstate SC Real Estate
Copyright ©2008 Susanne Case-
UpstateCarolinaOnLine.com
Serving SC Greater Greenville Area, Spartanburg, Anderson, Pickens, Oconee Real
Estate
If you sell your home, apartment or duplex, for a profit, don't jump too quickly
to the conclusion that you'll be taxed for your gains. You might be surprised to
find otherwise. Also, some of those out-
This is the good news: You won't be taxed or even required to report the sale of your home unless your gain is more than $250,000 ($500,000 if married filing a joint return). This is called the exclusion rule, and it applies only if you've owned the home for at least two of the last five years leading up to the sale, and lived in the house as your main home for at least two of the last five years.
It's not the amount of money you receive for the sale of your home that determines whether you'll have to include any proceeds as taxable income, but the amount of gain on the sale over your cost, or basis.
If you can exclude all of the gain, you won't need to report the sale on your tax
return. (You will likely receive a notice from the IRS requesting information to
show your entitlement to the exclusion.) Generally, you may claim this exclusion
only once in any two-
If you sell your home for a profit in excess of the $250,000 limit ($500,000 if married
filing a joint return), the additional amount is taxed as long-
Exceptions to the Rules
Even if you don't meet the two-
For example, the IRS says it will allow a reduced exclusion if you did not meet the "ownership" and "use" tests on a home you sold due to health reasons, a change in place of employment, or an "unforeseen circumstance."
Also, the IRS says that if you did not live in your home the required two years during
the five-
If you realize a loss on the sale of your home, the loss is not deductible. And if your home is sold in a bank foreclosure or repossession, that's treated the same as a sale, meaning you, as the borrower/seller, may realize gain or loss.
Related Tax Deductions
The "points" you paid to get the loan on the house you're selling are generally deductible the year you paid them. But if you haven't deducted all the points you paid to secure a mortgage on the home, you may be able to deduct the remaining points in the year of sale. One example is if you were deducting points paid on a loan on the home you're selling over the life of the loan, you may be able to deduct any points you hadn't deducted in prior years. ("Points" includes loan placement fees, and are also called loan origination fees, maximum loan charges, loan discount or discount points.)
If you're buying another home and took out a new loan, you'll be able to deduct points (and interest) on your new loan, any remaining points left on the old home, and the real Estate taxes paid on both homes. Real Estate taxes are usually divided so that the seller and buyer each pay taxes for the part of the property tax year that each owned the home.
Though they may not be taken as tax deductions on your return, your selling expenses
-
Tax Treatment of Gain from Sale of a House
FINE PRINT IN GAINS TAX EXCLUSION -
(reprinted from the 01/22/98 issue
of the New York Times)
LAST year, the Federal Government gave an extraordinary gift to most homeowners by excluding from taxation as much as $500,000 in gain on the sale of a principal residence.
But that does not mean that everyone who sells a home at a profit will get a half-
"While most homeowners will benefit front the new tax law, many may still find themselves in a taxable situation when they sell their home, ' said Abe Kleiman, a Manhattan certified public accountant.
The most significant limiting factor of the new law Mr. Kleiman said, has to do with
the marital status of the owners. Generally, he said, married couples who file jointly
can exclude up to $500,000 in gain from taxable income -
The two-
Under the new law, however, any gain in excess of the applicable exclusion may be Subject to tax.
"It's probably not so difficult to imagine older people who have a home worth $700,000
or $800,000 today, to have a cost basis of $50,000 or $100,000 if they bought their
first home 40 years ago," he said. In such situations he added, couples will likely
find that they are subject to taxation on any gain that exceeds $500,000 -
Moreover, he said, in situations where one spouse dies, and the surviving spouse has been the sole owner of the property, he or she would have to sell the property in the year the spouse died to qualify for the full $500,000 exclusion. Mr. Kleiman said the reason for this is that a joint return can only be filed for a year that both spouses are alive.
Timing is important.
Joel E. Miller, a Queens tax lawyer, said that for a seller to be eligible for the maximum exclusion under the new law, the property must have been sold after May 6, 1997, and must have been owned and occupied as a principal residence for at least two of the five years preceding the sale.
However, Mr. Miller said, taxpayers who sold their home after May 6, but on or before
Aug. 5, 1997 -
Mr. Miller cautioned, however, that homeowners in such a situation should carefully
consider the long-
For example, Mr. Miller said, a married couple with a $100,000 cost basis in a home
they sold during the "window period" for $700,000 would have a gain of $600,000 -
If the replacement dwelling is sold for $800,000, the couple will then be subject to taxation on $200,000 of their $700,000 gain after taking their $500,000 exclusion. On the other hand, Mr. Miller said, if the couple had chosen not to roll over their gain into a replacement dwelling, but instead bit the bullet and paid the tax on the original $100,000 profit, they would have to pay no additional tax on the sale of the replacement dwelling because they would get a new $500,000 exclusion on that sale.
Another factor that may limit a seller's total tax savings has to do with location of the property. While New York and Connecticut generally follow the same capital gains tax rules as the Federal Government, New Jersey, for one state, does not.
According to Dan Emmer, a spokesman for the New Jersey Division of Taxation, property owners who sell their New Jersey residences at a profit have to include their total gain in their New Jersey taxable income, even if is excluded for Federal tax purposes. Mr. Emmer said that he was not aware of any pending or proposed legislation that would change that rule.
He noted that the homeowner can still defer taxes by rolling over the profit into a replacement within two years.
Finally, even the use of a property -
Martin Shenkman, a Teaneck, N.J., tax lawyer, said that those who use a portion of
their home for business purposes -
For example, Mr Shenkman said, if half of a two-
One common way to avoid such a result, Mr. Shenkman said, is to discontinue the business use for at least two years prior to the sale, thereby making it possible to treat the entire house as a principal residence. In such a situation, he said, the seller must still account for any depreciation deductions "allowed or allowable" on the business portion of the home.
That means that any depreciation deduction that should have been taken for the business
use of the property -
Under the new law, Mr. Shenkman said, depreciation deductions taken before May 7,
1997, are treated as before -
But depreciation deductions taken from May 7 onward cannot be offset by the exclusion,
but must be included in taxable income. That means, Mr. Shenkman said, that anyone
taking a home-
In fact, he said, as generous as the new law seems, it should not lull homeowners into a false sense of security. There is no guarantee, he said, that the $250,000/$500,000 exclusion, which seems like a lot of money now, will be sufficient to cover accrued gains realized 20 or 30 years in the future.
"Every homeowner still has to keep detailed records and crunch the numbers when it comes time to sell," he said.
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