7 Amazing Tax Secrets when selling your personal residence

So you are selling your personal residence.  But why?  Do you have a job transfer?  Moving closer to family? Or are you just tired of the weather when you have been living for most of your life?

No matter what the reason is, you need to consider these top 7 things to make sure that you don’t unknowingly create a tax bill on the sale of your home:

1)  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.

2) Of course just like most tax rules, there are exceptions.  One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers.  In addition, there can be facts and circumstances that may allow you to pro-rate the exclusion if you lived in the home less than 2 years.  For example, if your company transfers you to another location outside of your control, you may be able to exclude some or all of the gain.

3) The gain exclusion amount is limited to $250,000 for a single individual and $500,000 for a married filing joint couple.  This exclusion can only be used once every two year.

4) Do you need to report you the sale on your tax return? Well, if you receive a Form 1099-S, then you definitely do.  If you cannot exclude all of the gain, then you should report the sale on Schedule D.  Also, if you meet some exception that you can exclude the gain, you should report the sale.  Otherwise, you generally do not need to report the sale on your tax return in the year of the sale.

5) However, if by chance you were to sell your home for a loss, do not claim this on your tax return.  Losses on the sale of your personal residence (or any other personal asset for that matter) is not deductible.

6) Keep in mind that if you own more than one home, you can only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.  You still have to meet the 2 out of 5 year threshold, but you also need to consider where you receive your mail, what address you have on your driver’s license and where you are registered to vote.  This will all factor in on whether the house is your considered your primary residence.

7) If by chance you were one of the lucky people to qualify for the First-time home buyer credit in 2008 through 2010, if you sell your the home in which you claimed that credit, you need to determine if you have to recapture some of the credit upon the sale.

If you sell your home, it is important that you consult with your tax adviser to make sure that you don’t have any tax surprises when you go to file your return.