Table of Contents
- Tax Tips For Homeowners
- 1. You may not even have to report the sale
- 2. It is better to book a long-term gain on the transaction
- 3. Don’t forget to claim for the selling expenses
- 4. You can also claim for the moving expenses
- 5. Loss on sale of home is not tax-deductible
- 6. A portion of the gain may be tax-free
- 7. Make sure you notify the IRS about the new address
A new job or a new family may prompt you to move to a new residence, maybe in a different locality or state. You might be awfully busy taking care of all the crucial decisions regarding the sale of your current home and looking for a new place.
In addition to these logistic arrangements, you need to consider the bearing of your decisions on your taxes too. Here are some quick tax tips that can clarify some tax-related laws when it comes to selling your old home.
Tax Tips For Homeowners
1. You may not even have to report the sale
All home sales need not be reported in the tax return. The law requires you to report only those home sales through which you make a taxable gain. In case there is no taxable gain, you can simply file an affidavit declaring so.
In case you receive Form 1099-S (Proceeds From Real Estate Transactions), from the IRS office, you need to report the sale of the house whether or not you’ve made a taxable gain from the sale.
2. It is better to book a long-term gain on the transaction
The gain on the transaction can be categorized as short-term gain or long-term gain for income tax purposes. Different tax rates are applicable for short-term and long-term gains, so you need to identify the category in which your transaction falls.
Short-term gain is the profit made on the sale of a house you’ve owned for less than a year. While the long-term gain is the profit on a house for more than a year. Usually, the applicable tax rate for profits from the sale of a home owned for more than a year, i.e. long-term gain on the sale of house property, is less than the rates applicable on short-term gain.
3. Don’t forget to claim for the selling expenses
Selling a property isn’t easy. It involves preparation and some heavy expenses. When you sell your house, you’ll be paying for advertisements, insurance, and real estate agent’s fee, to mention the least. You may also have to make some renovations, repaint the house, etc. There will be some necessary repairs too.
Overall, you can claim most of these expenses in the income tax return. Expenses on repairs and renovations can be claimed only if they are made prior to 90 days from the day of the sale.
4. You can also claim for the moving expenses
When you’re shifting homes, you’ll obviously incur some expenses in the moving out process. If the reason you’re selling your home and moving to a new place is related to your job, you can claim deductions for some of the moving expenses. The law regarding this differs from state to state. So, if you’re moving to a new state, say California, you should contact a Tax Lawyer in California to know more about the applicable laws.
5. Loss on sale of home is not tax-deductible
Don’t assume that if your gain from the sale of your home is taxable, the loss would be tax-deductible. The federal income tax laws regard the loss on the sale of house property as a personal loss. Like any other personal loss, you can’t claim a deduction for this.
6. A portion of the gain may be tax-free
There is a possibility that the earnings from the sale of your home are not taxable entirely, or a portion of the earnings is not taxable. Certain conditions, if met, qualify the income from the gain on house sale as tax-free. One of the conditions is that the house should have been your main family residence for at least two years in the five years preceding the sale.
Even if you can’t exclude the entire gain from income tax, you may still qualify for a reduced exclusion.
7. Make sure you notify the IRS about the new address
Quite evidently, you’ll be moving to a new residence once you’ve sold away from the house. You should notify the IRS office regarding the change in address so that you can receive all future tax-related correspondences at the new address. Many people, who change houses, fail to receive their income tax refund check because they forget to update their new address with the IRS office.