ARE
YOU PLANNING ON SELLING YOUR
HOME?
By Donna
Stern, CPA
Many of us find ourselves selling
our homes and in these times
of huge changes in property values
in California, we may need to
look at the tax affects of this.
For years prior to 1997, taxpayers
had to reinvest the proceeds
in order to avoid paying taxes
on this gain. With the passage
of the Taxpayer Relief Act of
1997, Congress passed a law to
simplify this very common act.
This 1997 law now allows us
to exclude $250,000 of gain from
the sale if you are single, or
$500,000 if you are married filing
a joint return. The only
requirement is that you would
have to live in this home as
your principal residence for
2 out of 5 years prior to sale. This
is not a one time thing. You
can do this every 2 years. Taxpayers
are able to exclude gains from
the sale of rental properties
by properly using this 2 year
planning tool.
Sale of residence due to divorce
causes many issues. If one spouse
moves out for more than three
years and house does not get
sold for another two years, it
is important that you and your
spouse have a written agreement
or court order granting the spouse
remaining in the home exclusive
use of the residence, to preserve
both taxpayers the ability to
fulfill the residency requirement
and therefore each could exclude
up to $250,000.
There are exceptions to the
2 year rule. This means
that under certain circumstances
you can still exclude at least
part of the gain if you meet
the exception rules. One rule
is the need to sell your home
before the two year mark if your
employer requires you to move,
another reason would be for health
reasons, or any unforeseen circumstances.
In case you are lucky enough
to have a gain higher than your
exclusion, the federal tax rate
on the this gain has been reduced
to 15%.
Always talk to your tax advisor
before selling any of your large
assets.
Bio and more articles by Donna
Stern, CPA
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