As the summer season ends, the real estate market often sees a surge in activity, with many homeowners deciding it’s the perfect time to sell. For those looking to move, understanding the tax implications of selling your home is crucial. Here’s a comprehensive guide on how to handle your home sale from a tax perspective in 2024.
Ownership and Use Requirements
To qualify for the tax exclusion on the gain from selling your home, you must meet specific criteria regarding ownership and use. Within the five-year period before the sale, you need to have both owned and used the property as your primary residence for at least two years. This period doesn’t need to be continuous, but it must total at least 24 months.
Exclusion of Capital Gains
- Single Filers: If you’re filing as a single taxpayer, you can exclude up to $250,000 of the gain from your taxable income.
- Joint Filers: For married couples filing jointly, this exclusion doubles to $500,000.
If your gain falls within these limits, and you meet the ownership and use tests, you might not need to report the sale on your tax return, unless you receive a Form 1099-S from the closing agent or real estate company.
Dealing with Losses
Unfortunately, if you sell your home at a loss, this isn’t deductible against your income. The IRS does not allow homeowners to claim a loss on their personal residence.
Multiple Homes and Tax Considerations
Only your primary residence qualifies for the gain exclusion. Any gain from selling a second home or investment property will be subject to capital gains tax. It’s essential to clearly designate which property is your main home for tax purposes.
Reporting the Sale
If you don’t qualify for the full exclusion, you must report and recognize the gain on your tax return. Additionally, receiving a Form 1099-S mandates reporting the sale, regardless of whether there’s a taxable gain.
Exceptions to the Rule
Not everyone fits neatly into the standard rules. Certain individuals have special considerations:
- Military Personnel, Intelligence Community Members, and Peace Corps Volunteers: These groups might have shorter required periods of ownership and use due to service-related moves.
- Individuals with Disabilities: There are provisions for those who can no longer use their homes due to health issues.
Conclusion
Selling your home involves more than just finding a buyer; it’s a process that can significantly impact your tax situation. By understanding these tax implications, you can better plan your sale to maximize financial benefits. Always consider consulting with a tax professional to tailor advice to your specific circumstances, ensuring compliance and potentially uncovering additional tax-saving strategies. Remember, while the fall might be prime for moving, your tax strategy should be year-round.
Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.
Mitzi E. Sullivan, CPA is a cloud based professional services provider
specializing in cloud accounting.