As the school year draws to a close and the
days lengthen, you may be one of the many homeowners who are getting ready to
put their home on the market. After all, in many locales, summer is the best
time of year to sell a home. But it’s important to think not only about the
potential profit (or loss) from a sale, but also about the tax consequences.
Gains
If you’re selling your principal residence, you can
exclude up to $250,000 ($500,000 for joint filers) of gain — as long as you
meet certain tests. Gain that qualifies for exclusion also is excluded from the
3.8% net investment income tax.
To support an accurate tax basis, be sure to
maintain thorough records, including information on your original cost and
subsequent improvements, reduced by any casualty losses and depreciation
claimed based on business use. Keep in mind that gain that’s allocable to a
period of “nonqualified” use generally isn’t excludable.
Losses
A loss on the sale of your principal
residence generally isn’t deductible. But if part of your home is rented out or
used exclusively for your business, the loss attributable to that portion may
be deductible.
Second homes
If you’re selling a second home, be aware that
it won’t be eligible for the gain exclusion. But if it qualifies as a rental
property, it can be considered a business asset, and you may be able to defer
tax on any gains through an installment sale or a Section 1031 exchange. Or you
may be able to deduct a loss.
Learn more. If you’re considering putting your home on
the market, please contact us to learn more about the potential tax
consequences of a sale.