Getting ready to sell a home is a busy yet exciting time. Many sellers worry about how the sale of the house with affect their yearly tax return. This is a normal concern. Here are some myths about how selling your home will affect your taxes, come April.
A person who has sold a home can claim up to $250,000 of the gain from the sale if he or she has owned and lived in the home for two to five years prior to the sale. If you are married, you will be able to claim up to $500,000 in taxes. In terms of age, there actually is not an age-related requirement for capital gains exemptions on the sale of a home. People may buy, sell and earn capital gains as often as they want. See: Tax Planning for Selling Your Home.
There is also not an IRS requirement that home sellers must roll over real estate profits from the sale of one home into the purchase of another. Sellers may do whatever they wish with the money of any real estate sale. Only the sale of a person’s principal residence applies to capital gains exemptions. The exemption does not apply to vacation or investment properties.
Gains do not have to be offset by losses on another real estate transaction or any other investment.
A gain is a gain, and a loss is a loss in the eyes of the IRS. There is a longstanding myth that owners can claim a loss. Losing money on a real estate sale hurts but does not affect your tax returns. You should be aware that home improvements are not deductible. The cost of painting and repairs to prepare a home for sale comes out of the owner’s pocket and is not tax-deductible.
The government does not tax every home sale. This is, however, true for homeowners above a specific income threshold. The costs of moving are not tax-deductible unless they’re work-related. There are strict requirements on what qualifies as work-related moving expenses. If they are not related to work, do not expect to be reimbursed for the costs of moving.