There are several conditions and exceptions, levied by the US government over the taxes on selling a house.
You must be knowing that on the sale of a house (primary house), you are liable to pay a capital gain tax to the government, rules for which are governed by Internal Revenue Services (IRS)
For most of the house-sale, the profit is now tax-free, but in case you are into the bracket for taxes on selling a house, there are steps you can take to maximize the tax benefits. You can calculate your gains, then apply the factors based on your basis, home improvements, first-time buyers rule, multiple-pregnancy conditions and more.
In some cases, most home sellers don’t even have to report the transactions to the IRS. But some are exceptions. In any case, you must know the rules to check which particular case you fall into. Since taxation is a complex study, referring to a solicitor proves beneficial for gaining maximum profit on taxes.
How the period matters?
The exemption amount and rules depend on how long you owned and lived in the home before the sale and then, how much profit you have made. If you owned and lived in the place for two of the five years before the sale, then you are liable for up to $250,000 of profit which goes tax-free.
Marital Status for deciding exemption of profit on taxes on selling a house
If you are filing a joint return after being married, the tax-free amount doubles to $500,000. If you sold for a loss, though, no deductions for that loss would be considered.
These exclusion rules are valid on the selling of a primary residence, no matter how many times that residence is being sold. Although, the main condition is you must have owned and lived in the house for two of the five years leading up to the saleand you haven’t claimed the exclusion on another home in these last two years.
In case of a joint return, at least one spouse must meet the ownership requirement and it is mandatory that both, you and your spouse must have lived in the house for two of the five years leading up to the sale.
The taxes on selling a house profit needs you to fulfill certain qualifications, as under
1. Ownership stating that you have been the owner of the house you are selling, for at least two years during the five years prior to sale
2. You must be using the house for sale as your principal residence for at least two of the five years prior to the date of sale.
3. And Timing that states you must not have excluded the gain on the sale of another home within two years prior to this sale.
In absence of meeting these requirements, there are special rules for claiming either the full exclusion or a partial exclusion.
Generally, the sale of your house needs to be reported on your tax return only if you have received a Form 1099-S or if you do not meet the requirements for excluding the gain on the sale of your home.
The IRS does not require the real estate agent who closes the deal to use Form 1099-S to report a home sale amounting to $250,000 or less ($500,000 or less for married couples filing jointly).If you don’t receive the form, that means the IRS got a copy as well and there is no need to report your home sale at all.
Though, this doesn’t necessarily mean you owe tax on the sale. Please verify if there is any mistake. If you are confident about qualifying for the tax-free exclusion of your profit, don’t report the home sale. But not before making sure that all your paperwork is up-to-date, in case IRS asks for it.