Tax Planning
After selling your home, you need to be prepared to address any tax issues related to the sale of your home. According to the Taxpayer Relief Act of 1997, you do not have to pay taxes on up to $250,000 of profit on the sale of your property. If you are married and filing jointly, that amount is $500,000. To qualify for this tax break, however, the property must be your principal residence.
If you sell your home at a price that is more than $250,000 or $500,000 as a married couple, you have to pay taxes on the profits in excess of your original purchase price.
In order for a home to be counted as your primary residence, you must have resided in the home for at least two years prior to selling it. You must also have spent the majority of your time living in that home. If you rent a portion of your home out to other people, the portion that you rented out is not considered your primary residence. Therefore, a portion of your sale is considered to be an investment property and is taxable.
There are no limits on how many times you can take advantage of this tax-free opportunity. Furthermore, you are not required to take the money from the sale and use it toward the purchase of another home.
It is important to note that local and state tax laws are not always the same as federal laws. Therefore, you should consult with an accountant to check on the tax laws that will affect you when you sell your home. In some cases, you can save a significant amount of money on taxes by simply waiting a little longer before selling your home.