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| Los Angeles, CA, 90555 |
| Phone: 310-555-5555 |
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Resource Details
for » Seller
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| Avoid Taxes When Selling Your Home |
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I have lived in my house since April 2002 and will be selling it in the next few months with a profit of $70,000. This money will be used for a down payment on my new home, which will be purchased around the same time. Is there any way I can avoid being taxed on the $70,000?
The answer depends on why you have to sell the house. The IRS will give you a break on the capital gains tax if you have to move for certain unforseen circumstances.
If you just want to trade up, though, the easiest way to avoid the capital-gains taxes would be to wait until next April before selling your house. As long as you've lived in the house for two of the past five years, you won't owe capital-gains taxes on up to $250,000 in home-sale profits ($500,000 if you're married).
But the IRS understands that circumstances beyond your control could disrupt your plans, so it allows you to take a partial exemption if you have to move because:
* You've taken a new job that is at least 50 miles farther away from you old home than your old job was.
* You need to move for health reasons, or for the health of relatives in your care.
* Your spouse, or the property's co-owner dies.
* You've divorced.
* You lost your job.
* Your family has grown due to multiple births from the same pregnancy.
* Your house was damaged by a natural or manmade disaster or an act of war or terrorism.
* Or because of other unforeseen circumstances approved by the IRS (see IRS Publication 523 Selling Your Home)
In these situations, your exclusion is based on the amount of time you lived in the house. If, for example, you sell the house in October 2003 -- 18 months after you bought it -- then you would get 75% of the $250,000/$500,000 exclusion, which means you won't have to pay taxes on $187,000 of your profits or $375,000 if married.
If none of the situations apply to you, then you'll be hit with a long-term capital gains bill on your profit.
Your tax bill would be based on the difference between your basis and your sale price. Your basis is the price you paid for the house plus:
* Closing costs you paid when you bought the house (such as property-inspection fees, title-insurance premiums, and other settlement fees).
* The cost of major improvements that add value to the home, such as adding a new room, a roof or central air.
Your basis can also be adjusted downward. See IRS Publication 523 for more information on adjusting your basis and a worksheet that can help you with the calculations. If you're still stuck paying something to the tax man, at least you can take advantage of lower long-term capital-gains rates. The new long-term capital gains rate is 15% for most people; 5% for those in the 10% or 15% brackets.
Read More: http://www.homebuyingrealestate.com/Frames/FrameHomeBuying.htm |
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