Many are aware of the benefits of home ownership when it comes to taxes, specifically, the mortgage interest and property tax deductions. But did you know when you sell that home, you can make up to $250,000 or if you are married $500,000 and not owe taxes on that profit?
Thanks to the Taxpayer Relief Act of 1997, the home-sale tax burden was lifted for millions of residential taxpayers. Now, rather than having to roll proceeds into a new home, sellers can use those profits for whatever means they see fit, like vacations, family, retirement savings or other investment opportunities. Additionally, this is not a onetime write off, but can be applied to each home you sell, with the same profit stipulations of up to $250,000, or $500,000 depending on your filing status.
There are a few rules and conditions that apply. Here is a short check list you can use to make sure you qualify:
1. Primary Residence The property you're selling must be your principal residence. That means you live in it. This tax break doesn't apply to a house or other property that you have solely for investment purposes. In those cases, the usual capital gains rules apply.
2. Time Resided in Home You have to have resided in that primary residence for the previous 2-5 years, which also means you only file for the Taxpayer Relief Act once, within a 2-year period.
3. Second Home Rules If it is a second home you are selling, like a cabin or vacation home, there are certain rules and limitations that apply as well. Since the Housing Assistance Act of 2008 was set up to assist those facing foreclosure, those who move into their previous 2nd homes will owe a tax based on the length of time the house was used as a 2nd, rather than the main residence.
4. Married or Newlywed Couples There are some unique twists for married couples too. To qualify for the exemption, both husband and wife must have resided in the home for a period of 2 years. So if you were recently married, and you file jointly, both of you must have resided in the home for a period of 2 years. If you lived in the home previously and your spouse moves in a year and a half before you decide to sell your home, you may need to file separately in order to claim the exemption. The other aspect of that is, if either couple sold a home within the previous 2 years and filed the exemption, this home would not qualify as it would fall within the 2 years.
5. Special Circumstances There are additional provisions for special circumstances, such as illness, unemployment, or other unforeseen circumstances and military families that often face deployment.
The bottom line is; you can turn your primary residence into a nontaxable profit source as often as every 2 years with the right investment properties. Learn how you can join the ranks of investment real estate ventures and contact Cap Core Real Estate today!