Sale Of Your Personal ResidencePlease use freely. All I ask is that you include everything in between the two borders. Please do email me with publication/forwarding particulars. It's neat to know who's benefitting from this information! This feature deals with USA tax laws and how you can use them to your advantage. It is made available on a more or less weekly basis. ******************************************************************************** Sale of Your Personal Residence The Taxpayer Relief Act of 1997 is the kind of people friendly legislation that becomes law all too infrequently. One of its most important provisions virtually eliminated capital gains tax on the sale of personal residences. All the 'rollover of gain into the next house' and 'once in a lifetime, over 55 exclusion' mumbo jumbo was effectively wiped out. Up to $500,000 in home profits is not taxed if you file a joint return; $250,000 if you're single. To qualify for this exclusion you must own and use the home as your principal residence for at least two of the five years prior to the sale. You can use this exclusion every two years for the rest of your life assuming you just love to move or your job requires it. If you're in the house for less than two years, you may have to pay tax on the entire gain unless your move is job or health related, in which case a prorated exemption is available. So be careful about this. If you have a loss when you sell your house, sorry. You can't deduct this. Unless you've been in your home for a long time and have experienced huge appreciation in value or live in a place like California where home prices seem to never stop increasing (even with out of control energy costs), you probably won't have to worry about this particular tax. However, 'better safe than sorry' is always sound advice. So here are some important tips to remember: 1. Keep track of permanent improvements you make to the house. The list is lengthy so talk with your tax person about what qualifies or refer to IRS Publication 523, Selling Your Home. For a link go to: http://taxsites.com/topics/home-ownership.html 2. Keep the closing documents from both the purchase and sale of the house. Some of the items on the settlement statements can be used to reduce gain. 3. The rules can be costly and complicated for those who sell a home that is used partly for business or rental purposes. Assuming your eligible to deduct a home office, you should carefully analyze whether it's still worth claiming this deduction, particularly in the two years just prior to a sale. Concerning home office deductions, some of the internet information from 'experts' is just plain wrong. Be cautious about wild claims. This topic will be covered in detail in future Terrific Tax Tips. 4. If you previously postponed paying tax on home sale profits under the pre 1997 law, make sure you retain that information. If you're not sure, then ask your tax person or look for Form 2119 in your old returns, keying in on the year in which you sold that home. 5. It is always possible that the tax law might change again. If the government someday needs to raise more money and decides to lower the amount of home sale profits exempt from tax, then all bets are off. Keep your records. 6. If you have not deducted all the points you paid to secure a mortgage, particularly if it's a refinance, you probably will be able to deduct the remaining points as an itemized deduction in the year of sale. 7. You typically do not report the sale of your main home in your tax return unless you have a gain and at least a part of it is taxable. If you must report a gain, do this on Schedule D. You will probably not receive a Form 1099-S, Proceeds From A Real Estate Transaction, if you can exclude all the profts from taxation. If you receive this form, make sure you understand why. If you have it so does the IRS. Also tell your tax preparer. As always, PLEASE make sure you read and understand the fine print. It wouldn't be taxes in America otherwise! You can find help at my website: Or just send me an email. mailto:Charlie@All-About-Taxes.com PLEASE subscribe to my ezine at ******************************************************************************** This article courtesy of http://thatsneato.com/neat. You may freely reprint this article on your website or in your newsletter provided this courtesy notice and the author name and URL remain intact. |
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