As the real estate market begins to be positive, it is a good time to review the tax requirements for the sale of a home and any related tax breaks. If you sell your primary residence (the one you lived in full time), the sale may be free of taxes. All profits from the sale of a second or third home, however, are taxed. Tax break for married couples who file together can receive up to $500,000 ($ 250,000 for single filers) in tax-free profits from the sale of their first home. Profits above the threshold are taxed at long-term capital gains rates, which are currently 20% to 23.8%. The tax break applies only to individuals who sell their primary home and does not include home costs or improvements. It applies specifically to profits from the sale. Thanks to the $500,000 tax break, a married couple who bought a $200,000 home and spent $50,000 on improvements could sell for as much as $750,000 before owing federal taxes.
Eligibility: Homeowners can claim a tax break every two years, as long as they live in the home they sell for at least two of the last five years. Homes that meet the eligibility requirements may be duplexes, condos, boats or mobile homes, provided that they have standard plumbing, kitchens and sleeping facilities. Those who have been widowed in the last two years can claim the $500,000 exclusion if they sell the house within two years of the passing of their wife.
In addition, if the homeowner was required to move due to changes in employment, reasons related to health or an unexpected circumstance such as death or divorce, but did not comply with the two-year provision, he may be eligible for an exclusion. If you choose to use your holiday home as our main residence, the rules become a bit more complicated. The IRS will primarily determine the amount of time you spent on the property and prorate the amount of credit you are entitled to. Rental units that are part of the primary property of the homeowner, such as a basement or garage apartment, are not considered for the tax credit and only the percentage that the homeowner maintains specifically is eligible for the tax break.