Sold a House: What Do I Need for Taxes? A Home Seller’s Guide to Navigating Tax Season
Table of Contents
Introduction
Selling your home is a monumental task that doesn’t end with handing over the keys. The IRS will want a piece of the pie if there are capital gains from the sale. But don’t worry, it’s not all about the payments; there are exclusions and deductions that could work in your favor.
Understanding Capital Gains Tax
What is Capital Gains Tax?
When you sell a property for more than you spent acquiring it, the profit is known as a capital gain, and it’s taxable income. The tax rate depends on how long you owned the property and your income level.
Calculating Your Capital Gains
To figure out your capital gains, subtract the purchase price from the sale price, accounting for fees, improvements, and depreciation.
Eligibility for Tax Exclusions
The $250,000/$500,000 Home Sale Tax Exclusion
You can exclude up to $250,000 of the gain from your income ($500,000 for married couples) if you’ve owned and used the home as your primary residence for at least two out of the last five years.
Qualifying for the Exclusion
You’re not eligible for the exclusion if you’ve claimed it for another property within the last two years or if you haven’t met the residency requirements.
Tax Forms You’ll Need
Form 1099-S
This form is essential if you don’t qualify for the exclusion. It reports the sale to the IRS.
Form 1040, Schedule D
Here’s where you’ll detail your capital gains and losses for the year.
Deductible Selling Costs
What Costs Can You Deduct?
Real estate commissions, legal fees, and any home staging or repair costs aimed at making the sale can reduce your capital gains.
Importance of Record-Keeping
Keep all receipts related to home improvements and selling costs. These can adjust your cost basis and potentially reduce your taxable gain.
Special Situations and Considerations
Dealing with Rental Properties
Selling a rental property? You’ll have to contend with depreciation recapture and possibly other taxes.
Inheriting a Home and Taxes
If you’ve inherited a home, your tax situation might be different. The basis of the house is usually stepped up to the market value at the time of the previous owner’s death, which can affect the taxable gain when you sell.
