Selling a Home and Taxes: What to Expect

Most people know that there are taxes associated with selling a home. Yet, few understand exactly how they work, or that it’s frequently possible to get a tax exclusion on the profit of a home sale. If you’re familiar with the post-home sale tax structure you can take proactive steps to save money and safeguard your financial well-being for years to come.

What do Taxes Look Like When Selling a Home?

Today, there are multiple things homeowners can do to make selling a home a benefit their tax picture. Here are the top things you should know about home sales and taxes before you dive in:

Any Profit Will Likely be Tax-Free

Today, it’s not uncommon for people who sold a home in the last tax year to not even report it to the IRS. There are some exceptions, however. While most home sale profits are tax-free, this rule depends on how long you lived in the house before you sold it and how much profit you made from the sale.

According to TurboTax, people who lived in the home for at least two of the five years before the home was sold can enjoy up to $250,000 in tax-free profit.

If you’re married and file taxes jointly, however, that number goes up to $500,000 in profit.  Sellers are allowed to access this exclusion every time they sell a home, as long as you lived in the home for at least two years before its sale, and haven’t already used your exclusion on the sale of another home in the two tax years before this one.

Qualifications for the Profit Tax Break

If you want to qualify for tax-free profits from your home, you need to meet three criteria. These are as follows:

• Ownership. While your ownership of the home doesn’t have to be continuous, you do have to have owned and lived in the home for two years preceding the sale. Keep in mind that these two years don’t have to be the ones right before the sale was made.
• Use. The home must have been your principal residence for two of the five years before the sale.
• No Previous Recent Exclusions. As mentioned above, you cannot have used your exclusion on the profits from another home within two years of this sale.

Filing Taxes Made Simple

If you sold a home this year and you’re wondering how (or if) it will affect your taxes, talk to your accountant or tax professional. While most home profits are untaxed, there are always exceptions and knowing the tax rules surrounding selling a home can help you keep your tax bill in check and ensure your taxes are accurate in the coming year.

Now, all that’s left to do is decide what you’re going to do with all that profit from your home sale!