Selling your home is a big step that will affect your life in multiple ways for years to come. What many sellers don’t realize is the unexpected impact it can have on their finances, especially if they make money on the sale. You can bet Uncle Sam will want his cut, so before you start packing, you need to understand a little about how selling your home will affect your tax return. Here, then, are 7 tax tips for home sellers in Effingham County and Savannah.
1. Some Don’t Have to Be Reported
The first thing you should probably be aware of is that not all home sales have to be reported on tax returns. Here’s how it works in this case. When you sell, you sign an affidavit stating that you won’t realize any taxable gain from the sale of your home. Then because you’ve signed that affidavit, the closing agent usually won’t send the Form 1099-S to you or the IRS, which means the sale isn’t reported. But if you do receive the 1099-S, then you do have to report the sale, even if there’s no taxable gain.
2. Loss Is Not Deductible
This is an important one of our tax tips for home sellers in Effingham County and Savannah because many sellers are under the impression that a loss on the sale means a tax deduction for them. But the fact is that if you sell your home at a loss, the IRS considers it a personal loss. And that means that you can’t take a deduction on the loss.
3. Not All Gains Are Taxable
And here’s one of the top tips for home sellers in Effingham County and Savannah that contains some good news. If you sell your home at a profit, you may not have to pay tax on that profit. You are allowed to exclude up to $250,000 (up to $500,000 for sellers who are married and filing jointly) if:
- The home was your primary residence for at least two of last five years leading up to date of sale.
- Your home was not acquired by means of a like-kind trade or exchange during the past five years.
- You have not claimed such an exclusion for another home sale prior to the sale of this one.
4. A Partial Exclusion Is Possible
Even if you don’t qualify for the full $250,000 exclusion, you may still get some of the profit tax-free. If, for example, you didn’t live in the home for two of the past five years, but moved because of a job change, the IRS will still permit you to exclude some of the profit. This is one of the tax tips for home sellers in Effingham County and Savannah that can get a little complicated, so be sure to consult your agent and/or tax professional.
5. Only One of Two Lived-in Homes Is Eligible
If you have two homes that you’ve lived in, only one of those – your main home, the one you live in the most throughout the year – is eligible for the exclusion. Your main home, in this case, would be the one where you get your mail and the one whose address you list with billing companies and other organizations.
6. Tax on Gain May Be Due Where You Didn’t Live
This is one of the tax tips for home sellers that looks at the other side of the coin. If you didn’t live in the home and it increased in value so that you made a profit at sale time, you may have to pay tax on the gain. If, for example, the house was a rental property, you won’t be able to exclude any of the gain from your taxable income (beginning at the time you rented the property).
7. Lean on Your Agent
Hopefully, these tax tips for home sellers in Effingham County and Savannah will aid you in assessing the full financial impact of selling your home. Still, it can get more than a little confusing for anyone who isn’t well versed in pertinent tax laws. That’s why it’s too important in these matters to lean on your agent and the expert advice she can provide.