How does selling a home affect someone's tax filing? If you have recently sold a house, there are some things you may want to be aware of when tax season rolls around. One bit of good news is that- if you...
One bit of good news is that- if you sold your house recently- you may not owe taxes on your gain. "Selling a home, you get the Section 121 Exclusion," says Brian K. Gilroy, Real Estate Attorney and CPA. "To get that you have to live in the house two out of the last five years... Section 121 of the code details what happens when you sell a house and how much you get to exclude from paying taxes on... if you make $500,000 or less and you're married you pay no taxes on that $500,000, and that's based on your sale price, your basis, the cost of selling the house, and stuff like that."
You must be 'married, filing jointly' to qualify for the Section 121 Exclusion- it does not apply to you if you are 'married, filing separately." For single individuals, the exclusion amount is up to $250,000. Remember, however, that you cannot exclude more than the sales price. If you home was sold for $150,000, then the maximum amount you can exclude is $150,000.
If you were unable to spend a full 2 years in a home before having to sell it, you may not be out of luck yet. "There's some ways to get a percentage of that if you're forced to move because of your job, or other items like that," say's Mr. Gilmore.
Does what you owed on a mortgage make any difference in your gain? According to Mr. Gilroy, No, it does not. "Mortgage has absolutely- other than your deductible interest- nothing to do with what you make or don't make when you buy and sell a house," he says. "When you buy a house you have a basis, which is basically what you pay for costs you weren't able to deduct. Whether you get a mortgage or not does not affect your basis. In general it's you're refinancing pay costs that may increase your basis in some very unusual situations, but your basis is... the money you have in the house (though it's more complicated than that)."
Mr. Gilroy continues, "When you sell the house you receive money, obviously, the cash you receive is affected by your mortgage, but your selling price is what you use to determine your gain, selling price less the cost of selling the house. If you sell your house for $500,000, and you paid a $100,000 basis, you had a $400,000 gain, even if you had a $500,000 mortgage."
When it comes down to it, Mr. Gilroy explains, "People are always concerned about the cash they receive, but it's actually your sales price less deductible costs."
Remember, when moving, it is important to alert the IRS of your change of address to ensure receipt of all communications and not delay your refunds. You can notify the post office, write it on your tax package or your return, or fill out a change of address Form 8822.
