Tax Considerations When Selling Your Home
Tax Considerations When Selling Your Home
In recent years, tax regulations on capital gains earned from the sale of one’s primary residence have changed significantly. Understanding these considerations is particularly important for homeowners who have recently sold their homes or are in the process of doing so. This can help you assess any potential tax liabilities or benefits that may arise from the sale of your home.
Tax Exemptions
If you have owned and lived in your home for at least two of the last five years before the sale, then up to $250,000 of profit may be exempt from federal income taxes. If you are married and file a joint return, that amount doubles to $500,000. To qualify for this exemption, you cannot exclude the gain on the sale of another home within two years of this sale.1,2
Taxpayers who do not qualify or choose not to claim this exclusion must report gains on their tax return. If you are eligible to exclude the entire taxable gain from the sale, you may not need to report it unless you receive a Form 1099-S or fail to meet the above requirements.1,2
If you sell your home for less than you paid for it, unfortunately, you can’t deduct the loss. Regardless of your situation, it is recommended to consult with your financial and tax professionals before conducting any real estate transaction.
Understanding the Exceptions
Even if you do not meet the above requirements, you may qualify for this exclusion if:1
- You receive the house in a divorce settlement.
- You are able to count short-term absences as time lived in the house.
- A surviving spouse who has not remarried can count the time that the deceased spouse lived in the house.
It is important to note that the 5-year qualification period can also be suspended for up to 10 years in cases where any spouse has served on “qualified official extended duty” as a member of the military, foreign service, or federal intelligence agencies.1
Even if you don’t pass the 5-year rule, you may still be eligible for a reduced exclusion if you have experienced a change in employment or health, or due to unforeseen circumstances such as divorce or multiple births from a single pregnancy.
If you are considering selling your home, I encourage you to familiarize yourself with these important tax considerations and how they may affect your financial plan. As always, please feel free to reach out if you have questions or concerns about your personal situation.
1IRS.gov, August 7, 2023
2The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties.
Related Topics
Disclosures: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Concord Wealth Partners, or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Concord Wealth Partners. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Concord Wealth Partners is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Concord Wealth Partners’ current written disclosure Brochure discussing our advisory services and fees is available upon request or on our website. Please Note: If you are a Concord Wealth Partners client, please remember to contact Concord Wealth Partners, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing, evaluating, and/or revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Concord Wealth Partners shall continue to rely on the accuracy of information that you have provided. Please Note: If you are a Concord Wealth Partners client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
