What's New in Taxes
Take advantage of the tax rules when you sell your home
elling your home and moving into a less expensive one can free up equity that can be used to pay down debt, to build up retirement funds, or for other purposes. When you sell your home, you don't have to buy a more expensive house in order to postpone taxes on the sale. In fact, you don't have to invest in another house at all.
If you meet certain qualifications, you can use your sale proceeds for whatever purpose you choose - without having to pay tax. If you own a house, it's a good idea to brush up on the basic tax rules for home sales.
Old rules. In 1997, Congress eliminated two longtime rules from the tax law. Now you can no longer roll over gain from one home to another, even if you want to. And the old $125,000 gain exclusion for those 55 and older no longer exists.
Current rules. Married taxpayers who meet certain eligibility requirements may exclude up to $500,000 of profit on the sale of a home. The exclusion amount is $250,000 for singles. To qualify for this provision, you must have owned and occupied the home as your principal residence for at least two of the five years preceding the sale. There are no age requirements for this exclusion, and you may take advantage of this tax break as many times as you like and qualify.
Planning opportunities. There are other tax-planning opportunities in the home sale exclusion rules. For example, you may be able to convert a vacation home or a rental property into your personal residence. Then when you sell, some or all of your gain may be tax-free. The definition of "principal residence" includes more than just a house. A condominium, duplex, apartment, even a houseboat or yacht can qualify as long as it's your principal residence.
If you have questions about the home sale rules, give us a call. We'd be happy to discuss tax-saving opportunities relating to your home, your vacation home, or your rental property.