Since the real estate market is beginning to show a positive trend, it is a good time to review the tax requirements for selling a home and any related tax breaks. If you sell your primary home (the one you lived in full time), it is likely that the sale will be tax – free. Any profits from the sale of a second or third home are taxed, however.
Tax break for primary residence:
Couples who file together can receive tax – free profits of up to $ 500,000 ($ 250,000 for single filers) from their first home. Profits above the threshold are taxed at long – term capital gains rates, currently between 20% and 23.8%. The tax break applies only to people who sell their primary home and does not cover the cost of their home or improvements. This applies specifically to profits from the sale. A married couple who bought a $ 300,000 home and spent $ 100,000 on improvements could, thanks to the $ 500,000 tax break, sell up to $ 900,000 before they owed federal tax.
Homeowners can claim a tax break every two years as long as they live in the home they sell out of the last five years for at least two years. Homes that meet the requirements for eligibility can be a duplex, a condo, a boat or a mobile home, as long as they have standard plumbing, kitchen and beds. Those who have been widowed in the last two years can claim the $ 500,000 exclusion if they sell their house within two years of the passing of their spouse. Furthermore, if the homeowner is required to move due to changes in employment, health reasons or an unexpected circumstance such as death or divorce but has not complied with the two-year provision, he or she may be excluded. If you decide to use your holiday home as our primary place of residence, the rules become a bit more difficult. The IRS determines primarily the amount of time you have spent on the property and prorates the credit amount to which you are entitled. Rental units that are part of the primary property of the homeowner, such as a basement or garage, are not included in the tax credit and only the percentage maintained by the homeowner is eligible for the tax break.