Tax Tips For Selling Your Front Royal House!

The time of year is quickly approaching… that’s right, tax season is just around the corner! If you’re in the process of selling a home in Front Royal, you’re going to find these helpful tax tips for selling your property quite valuable. This article is intended solely for informational purposes and is designed to give you an overview of what to keep in mind as you navigate the tax implications of selling your home.

For specific questions, contact a trusted tax professional, or the IRS! 

Not All Profits Are Taxable

You can exclude a significant portion of your profits from taxes, provided you meet certain requirements. Generally, you will be able to exclude up to $250,000 of your profit from your tax return, or as much as $500,000 if you are filing jointly with your spouse. (However, if you sell your home at a loss, you will not be able to claim a deduction for that loss.)

This deduction is only applicable when selling your primary residence and can only be used once every two years. To qualify for this tax benefit, you must have lived in the home as your primary residence for at least two out of the last five years.

It’s also crucial to remember that when you move, you should update your address with the IRS to ensure your records are accurate.

Other Exclusions

If you don’t meet the requirements mentioned above, you may still have the opportunity to exclude a portion of your profits from your income tax. There are several special circumstances under which you could qualify for a prorated, tax-free gain. For example, if you need to sell your home due to a health issue, a job relocation, or other unexpected life changes, you may be eligible to write off a portion of the profit from the sale. These exceptions can help ease the tax burden in situations where selling your home is necessary due to personal or unforeseen reasons.

Reporting the Sale

If you receive a 1099-S form from the closing agent, you will need to report the sale to the IRS. This form provides the IRS with crucial information regarding the proceeds from your real estate transaction. To avoid the need for reporting, ensure that you can exclude all of your profits from the sale. Be sure to inform the closing agent at the time of closing that the 1099-S form should not be issued, as long as you meet the necessary qualifications. However, even if you are able to exclude all profits and do not owe any taxes, if the form is issued, you will still be required to file it with the IRS as part of your tax return.

Capital Gains Taxes

If you are selling an investment property or a home that you have owned for only a short period of time, it’s likely that you will be subject to capital gains tax. Capital gains taxes are determined by the amount of profit you make from the sale. If your income is on the lower end of the spectrum, you may not be required to pay any capital gains taxes at all. However, for individuals in higher tax brackets, the tax rate can be as high as 20%. Additionally, short-term assets—those held for less than a year—are generally taxed at the same rate as ordinary income, meaning the tax treatment could be higher than for long-term assets.

First-Time Homebuyer Credit

Depending on the specific dates of when you purchased and sold your home, you might be required to repay all or a portion of any credit you previously received. Generally, if you sell or move within 36 months of buying the home, you will need to repay the credit you received at the time of the sale. However, there are special rules that apply to this situation, and these details can be found in Publication 523 from the IRS, which provides guidance on home sales and the associated tax rules. Be sure to consult this resource to fully understand your obligations regarding the repayment of any credits.

Deduct Selling Costs

When selling your house, you will be able to deduct any reasonable costs associated with the sale of your home. This includes various expenses such as closing costs, improvements made to increase the property’s value, assessments, marketing expenses, agent commissions, and other related costs. It’s crucial to keep track of every single dollar you spend throughout the selling process. When tax season rolls around, these deductions can add up to significant savings!

Regardless of when you choose to sell, it’s always essential to seek the guidance of professionals to ensure that everything is handled properly. Make sure to consult with your real estate agent, accountant, and attorney to ensure that you’ve established the best possible terms and strategies for your situation.

There’s no need to stress excessively about taxes when putting your home up for sale. In most cases, it’s unlikely that Uncle Sam will be taking a substantial portion of your profits.

Summary

When selling a home in Front Royal, you may exclude up to $250,000 of profit ($500,000 for married couples) from taxes if the home was your primary residence for at least 2 of the last 5 years. Certain life circumstances may also allow partial exclusions. If you receive a 1099-S form, you must report the sale to the IRS. Investment properties may be subject to capital gains tax, with higher rates for short-term sales. You can deduct selling costs like agent commissions and improvements. Always consult a tax professional for personalized advice.

Tax Tips | Capital Gains | Selling Deductions | Profit Exclusions