LOVELAND – When selling a home, it’s important to understand the tax implications may follow. We often don’t think about it or realize this until next year, when filing income taxes. Knowing about taxes related to the sale of your home can help you better prepare for tax time and avoid any unpleasant surprises.
Capital gains tax
Capital gains tax may be due on the “gain” from the sale of your home. If owned and lived in the home for 2 of the last 5 years, you may exclude some of that gain. Those filing as single can exclude up to $250,000 or $500,000 for filing as married.
For multi-family properties, you may exclude a portion of the gain based on the space that you occupied as a primary residence. For instance, in a two family home where you lived in one unit and rented out the other, half of the gain would be related to your personal residency.
Depreciation should be included in the calculations, along with other factors. It’s best to have an experienced accountant or tax preparer assist with properly calculating your tax liability. This is particularly important if the property or your occupancy was not straight forward.
Losses on the sale of a home
If you lost money on the sale of a property that was used as a primary residence, that would be considered a personal loss. Unfortunately, there is no tax advantage to that. However, if the property was an investment property, then you may be able include it in your taxes.
First time buyer credits
A few different types of first time buyer credits have been offered over the years. Some require repayment and others do not. Some repayments are prorated based on the number of years that you have owned and lived in the home. It is important to know which tax credit you received in the past and what the terms are upon selling of your home.
First and second homes
If you own two homes, only one can be considered a primary residence for tax purposes. This situation is often encountered by folks who have a Colorado home during summer and another home in the South for the winter. Your primary residence is either the one at which you spend the most amount of time or the one tied to your mail, driver’s license,
and other registrations.
At closing, you will be asked to fill in and sign a tax form. This form asks about whether the property was a personal residence, how long you lived there, and whether you’ve sold another home within the last two years. These questions are aimed at determining whether you may owe taxes on the sale of the home. If you do not understand the questions (sometimes the wording is tricky or asked in reverse), please ask for assistance from the closing company.
The above is a general overview of home selling tax tips. Every property and seller is different, so the above is not intended as legal or accounting advice. Please seek help from a tax professional to determine your personal tax liability.
By Suzanne Plewes, RE/MAX Alliance in Loveland. Suzanne Plewes is a broker associate at RE/MAX Alliance. Write to 750 W. Eisenhower Blvd., Loveland, CO 80537, call 970.290.0373 or e-mail firstname.lastname@example.org.