Wise Planning For Selling Your HomeWise Planning For Selling Your Home http://learningcenter.statefarm.com/finances-1/taxes/wise-planning-for-selling-your-home/ bb3 Jan 27, 2012
By Holly Anderson, Editor in Chief
Are you thinking about selling your home?
As you consider your options, make sure you include the tax implications in your evaluation process. If the sale of your house results in a capital gain (the excess of the amount realized over the adjusted basis of the property) you may be subject to a capital gains tax when you file taxes. However, if you meet certain criteria, you can qualify to exclude all or part of any capital gain up to a limit of $250,000 ($500,000 on a joint return in most cases) from your taxable income. Also important to note is that you cannot deduct a capital loss on the sale of your home from your taxable income.
What are the criteria for excluding the capital gain from your taxable income?
- You must own and live (use) in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not need to be continuous nor do they need to occur at the same time.
- Generally, you cannot exclude capital gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain.
To avoid tax consequences, make sure you pass both the "ownership" and "use" tests before you sell your home. If you currently do not pass one or both of the tests, you may want to consider delaying the sale of your home until you do. See Tax Publication 523, Selling Your Home, to determine the maximum dollar limit you can exclude and for additional rules, explanations, examples, and worksheets.
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