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Tax Implications of Selling
Many things can affect your potential tax liability when selling your home. These include whether you purchased the home or inherited it. Whether you used your home for business or rental purposes. Costs associated with selling a home. And any improvements and additions you've undertaken.
The Federal Taxpayer Relief Act of 1997 provides capital-gains tax exclusions of up to $500,000 for married taxpayers filing jointly. And $250,000 for single taxpayers or married taxpayers filing separately. Current capital gains rates are 20 percent for those in upper tax brackets and 10 percent for those in lower tax brackets. Overall capital gains rates have been lowered even further—to 18 percent and 8 percent respectively—for assets acquired after December 31, 2000, and held five years or more.
To qualify for this tax break, you must have used the home as your primary residence for at least two of the prior five years. The two years don't have to be consecutive. If you relocate for your job but don't meet the requirement, you may be allowed to take a capital-gains exclusion proportionate to your circumstances.
This tax exclusion is not a one-time benefit. You may take advantage of it once every two years—as long as you meet the qualifications.
Here's a way to obtain more information about the tax implications of a "1031 exchange:" www.apiexchange.com
Selling Inherited Property
Tax rules differ when it comes to selling a home that you inherited. When deciding what to do with inherited property, consider the current estate-tax laws and basis practices.
If you sell an inherited home for a profit, you're required to pay federal and state taxes on the gain.
If you keep the house as a second residence and/or eventually move into it after renting it, you may take the $250,000/$500,000 capital gains tax exclusion, as long as you meet the requirements.
It’s always wise to discuss your home's sale with a tax professional, who can advise you on any tax benefits or liabilities.
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