Most of our home sellers are making nice profits on the sale of their homes. Unfortunately, some sellers will need to pay the IRS on those profits. Although that is not normally the case, it does not hurt to review this potential problem before putting your home on the market.
The Great Exclusion
If a homeowner lived in his house for 24 months out of the last five years, he is entitled to exclude $250,000 of the profits from the sale – or $500,000 for married homeowners. The 24-months period does not need to be consecutive, as long as you have lived in and owned the home for at least two years.
The “2 of 5”exclusion may be used each time you sell or exchange your primary home. Generally, the exclusion may be claimed only once every two years, although exceptions do exist.
Gotcha’s Exist!
In a recent listing appointment, our homeowner decided that the time was right to put a home on the market. Our seller moved out of state and rented the home for several years. Our seller realized that he was now making a profit, but was unaware of the requirement to live in the home for two of the last five years. The homeowner consulted his CPA/tax advisor before moving forward with the sale and decided the profit was big enough to pay the capital gains tax.
On another recent seller conversation, the seller had found a wonderful new home on an acre lot to purchase, but needed to sell his current home. The seller bought his current home only 18 months ago and would be making a nice profit on the sale. After consulting with a CPA, the seller decided to postpone the sale of his current home six months to avoid the capital gains tax.
As a standard part of business, Realtors are not experts on the details of capital gains taxes. For the best advice, consult a CPA or Tax Advisor.
Do you want to learn more about ways to control your selling costs and get the most money from the sale of your home? Contact us at (602) 753-0177 or www.ThompsonGroupAZ.com.
