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Tax Friendly Transaction

In most cases home sellers face no tax liability from their sale as long as the home has been their primary residence for at least two of the previous five years. Single taxpayers can exclude a profit of up to $250,000, and  taxpayers  filing joint returns can exclude a profit of up to $500,000. You can use this exclusion more than once in your lifetime as long as you haven’t taken the exclusion within the past two years for another house.

The IRS spells out certain cases in which you can take the exclusion on your profit, even if you haven’t owned your home for two of the past five years.  If you couldn’t live in the house because you’re divorced or your spouse died, or if you were deployed overseas by the military or by the U.S. Foreign Service, you may still be able to qualify for the full exclusion. A partial exclusion may be possible if your sale was due to a job loss or transfer, illness or because of other unforeseen circumstances, even if your family had a multiple birth (twins or triplets)!

If you’re certain that you’re not required to pay taxes on the sale  then you are not required to report the sale of your home on your federal tax return.

If you do have to pay taxes because the exclusions don’t apply your taxes will be based on the calculation of the sales price of the home, minus deductible closing costs, minus your basis. Some examples of deductible closing costs include the real estate broker’s commission, title insurance, legal fees, administrative costs and any inspection fees paid by you instead of the buyer.   The cost of home improvements done within 90 days of sale, made specifically  to sell your home, can  be deducted from your basis.

While these are some of the potential tax implications of selling your home, you should always consult your tax professional.

– Jon

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