When going to sell your home many people wonder if the profit they make off of the sale will be taxable or not. The answer is sometimes yes and sometimes no.
Generally the profit you make off of selling your home is considered a capital gain and taxed at capital gains rates. However, there are exceptions to this. There is tax law that sometimes allows you to exclude a portion or even all of your gain making it non-taxable.
Indivduals may be able to exclude up to $250,000 of capital gains on their home sales ($500,000 for married filing joint). This exclusion may be claimed each time you sell your main home but generally not more often then every two years.
To qualify, you must meet both the ownership and use tests.
• Ownership Test: During the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years.
• Use Test: During the 5-year period ending on the date of the sale, you must have lived in the home as your main home at least 2 years.
If you and your spouse file a joint return and both meet the use test, you normally will be able to claim the exclusion for married couples even if only one of you meets the ownership test.
If you do not meet these tests you may still be able to exclude at least part of your capital gains, but the circumstances must be related to health problems, job reclation or other unforseen distasters. If you think you may qualify to at least a partial exclusion but do not meet the above tests then it is best to consulting your tax advisor.
If you would like more information on home sale exclusions or need help figuring out your home sale gain then please contact us at firstname.lastname@example.org or visit our website at www.huddlestontax.com.