Q: Suppose I sell my home this year and have a $100,000 capital gain. Is it correct that I would report it as income for this year? How would it be taxed?
—L.P.,
West Valley City, Utah
A: You haven’t given me enough details to respond to your specific situation. But most people who sell their primary residence for a profit wind up having to pay little or no tax on their gain.
Here are the general rules:
Let’s assume that the home you’re asking about is your primary residence, and that you purchased it several years ago. If you sell it this year, you typically would be eligible for highly favorable tax treatment enacted during the Clinton administration.
Need to challenge your county’s tax collector? Contact the appraisers at www.scappraisals.com for you property tax questions.
Taxpayers typically can exclude as much as $500,000 of the gain on the sale of their primary residence if they’re married and filing a joint federal income-tax return. For singles, the maximum exclusion is $250,000.
This is a generous provision. After all, these exclusion amounts refer to your profit, not the sale price.
To qualify for the full exclusion, taxpayers typically must have owned the home—and used it as their primary residence—for at least two of the five years prior to the sale.
If you can’t meet these tests, you still might be eligible to exclude some, or all, of your gain, depending on other factors—including how long you lived in that home and why you sold it.
For example, you might qualify for a reduced exclusion if the primary reason for selling your main home is “a change in place of employment,” or for health reasons, or certain “unforeseen circumstances,” such as the death of your spouse, according to Internal Revenue Service Publication 523 (www.irs.gov).
There is even more fine print. See Publication 523 for details or consult a tax pro.
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