Since we'll be putting our house on the market any day now, I figured I'd better know how a house sale will will affect our 2012 taxes. I've been preparing our taxes for many years and I don't want any surprises! As it turns out, our home sale won't affect our taxes but it's good to be informed on these things before accepting an offer.
Some of you may be planning on cruising and perhaps selling your home, so I thought I'd share this information. I DON"T claim to be an accountant or tax expert, and since the tax laws are constantly changing it's wise to check the latest tax laws.
Currently, a single person doesn't need to pay any taxes on the sale of their home if the profit is $250K or less (married = $500K). We won't be making anything close to this, so we're good! To take advantage of this capital gains exemption, you must have lived in the home 2 out of the past 5 years ... we're good there. Also, this exemption of capital gains can only be taken every 2 years ... not a problem for us. In my research, I did find that IF we had taken this exemption in the past 2 years, we still may have taken the exemption if we were selling our home due to health problems, loss or change in job, unexpected financial difficulties, etc.
Another piece of information that I learned was that if our home had previously been rented for income, the requirement of living in the house 2 out of 5 years would still apply. The amount of time that the house was rented would be taken into account and the capital gains exemption would be adjusted accordingly.
Something else that takes effect January 1, 2013 ... a new 3.8% tax on some real estate transactions will take eﬀect. Many folks have feared that this 3.8% sales tax would apply to the sale of their home, but luckily that may not be the case. Instead of trying to explain it, I've copied info from realtor.org below:
Understand that this tax WILL NOT be imposed on all real estate transactions,a common misconception. Rather, when the legislation becomes eﬀective in 2013,it may impose a 3.8% tax on some (but not all) income from interest, dividends,rents (less expenses) and capital gains (less capital losses). The tax will fall onlyon individuals with an adjusted gross income (AGI) above $200,000 and couplesﬁling a joint return with more than $250,000 AGI.
Realtor.org goes into more specifics and has some great examples of how all this works. Ken and I hope to have our house sold before January 1st, plus we don't make near the $250K income so this wouldn't affect us anyway. However, it may affect some of you.
I hope this helps anyone considering selling their home. Remember ... Uncle Sam never dies!
Hasta luego ... until then. Mid-Life Cruising!
*For those that missed the other posts of this series, check them out below: