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Tax Information When Selling a Home

Tax Information When Selling a Home

 

Taxes, taxes, taxes. One of the more elusive aspects of real estate, and also the one nobody ever wants to think about. For the most part, any profit from home sales is not subject to being taxed, due to the 1997 Taxpayer Relief Act passed by former President Bill Clinton. While this is the general case, there are some exceptions to this act where there are tax payments required on a portion of the sale. Being aware that this is a possibility prior to selling will help ease some of the general stress in the process. Most people do not anticipate having to pay taxes on home sales, but we want to make sure to educate you on what instances could find taxations. It does not hurt to be overly aware, even it never applies to you.

 

Property taxes can be an overwhelming topic and full of confusing jargon, which is what puts most people off from equipping themselves with knowledge ahead of time. Rather than educating, people often avoid the topic altogether, which, in the end, could end up financially scarring them. We hope to simplify and clarify the topic of taxes by discussing who qualifies for tax-exemptions.

 

How Do I Know If I Will Have to Pay Taxes?

 

The answer to this depends on a few factors. If you have owned and lived in the home for two of the five years prior to the sale, then up to $250,000 of the profit will be tax-free. If you are married and file a joint tax return with your spouse, this amount doubles to $500,000. These amounts would be considered exclusions from your regular taxable income, however, if you sold at a loss, you do not receive a deduction of any kind. So what if your profit exceeds either of these two limits? However much rolls over must be reported as a capital gain on Schedule D. We will discuss capital gain in Part 2.

 

Qualifications for Tax Break from Selling a House

 

There are three things that must be true in order for you to qualify for tax-free income from your house:

 

  1. Ownership. You must have owned and lived in the home for a minimum of 24 months (2 years) within the 5-year period prior to the sale date. You might be wondering why they specify the five-year time frame. This would be in the event, for example, that you lived in a home for a period of time and then rented it out to a tenant for one to three years before the sale date. In that case, you would still qualify as long as you lived in the home for two of those years within the five-year time frame.
  2. Residence. As we mentioned before, in order to qualify for tax exemption, the house in question must have been your primary residence for at least two of the five years prior to selling.
  3. No other exclusions. You cannot have used the tax exemption for profit from a home sale on another house within two years prior to the current sale. 

 

Disqualifying Factors

 

If you are still unsure whether or not you qualify, read through this list and make sure you do not fit under any of these:

 

  • You did not live in the house for at least two years within the five-year time frame preceding the sale. (However, there are special circumstances for certain qualifying people, for example, those with disabilities or service members in the military. We will discuss this further in the next section.)
  • You did not own the property for two years or more within the five-year time frame preceding the sale.
  • The house was not your primary residence
  • You claimed the $250,000 or $500,000 tax-exempt income on another home within two years prior to the current sale date.

 

Two circumstances which will automatically disqualify you, regardless of special circumstances are:

 

  • You purchased the home through a like-kind exchange, also known as a 1031 exchange which involves swapping one investment property for another, in the past five years.
  • You are subject to expatriate tax.

 

What If I don’t Qualify?

 

  1. Servicemembers, Foreign Service, intelligence agencies. A person who falls under this category can elect to have the five year period for residency suspended for up to ten years during any period of time that they or their spouse serve on “qualified official extended duty” as a member of the military, uniformed services, Foreign Service, or federal intelligence agency. Qualified extended duty constitutes as a period of time for more than 90 days where you are stationed at least 50 miles from your primary residence or residing in government housing under government orders.
  2. Those with disabilities. If you become physically or mentally unable to care for yourself, you simply need to show that your home was your residence for 12 months out of the 5-year time frame leading up to the date of sale. Any time you may have spent living in a care facility also counts toward your residence requirement, as long as the facility in question holds a license from the state or other political entity that certifies them to provide care for those with your condition.
  3. Divorcees. If you were separated or divorced before the sale date, you can treat the home as your residence if you are the sole or joint owner and the divorce or separation agreement enables your former spouse to live in the home and consider it as his or her main residence. If the home was transferred to you (regardless if in connection with a divorce or not) you may count any time when your spouse owned the home as the time that you owned it as well, as long as you meet the residency requirement on your own.
  4. Widowers. If your spouse passes away and the surviving spouse does not remarry before the home is sold, the surviving spouse may count the time the deceased spouse owned and used the property towards qualifying for tax exemption. As a widow, you may also potentially qualify for the higher amount of $500,000 of exemptions if: 1) You sell your home within 2 years of your spouse’s death, 2) You have not remarried at the time of sale, 3) Neither you nor your late spouse used the exemption on a different home sold less than 2 years before the date of the current sale, and 3) The 2-year ownership and residency requirements have been met.

 

What If I Still Don’t Qualify for a Tax Exemption?

 

If you’ve gone through the list from top to bottom and are still unsure whether or not you qualify for a total exemption, it is possible you could still qualify for a reduced exclusion. This usually occurs in the event that:

 

  • You need to make a sudden move due to a work-related change. Specifically, if you transfer to a new job that is 50 miles or further than your last job was from the property. For example, if your current job is 10 miles from your home but your new work location is 60 miles away. This also applies to your spouse as well. In addition, if you take on a job after previously being unemployed and that job is 50 miles or further away, you may qualify.
  • Move due to health-related issue(s). If you must move to help care for an ailing family member or loved one, or you yourself are seeking long term care for a health-related issue, you may qualify. 
  • Something unforeseeable occurs.
    • Your home was destroyed or suffered casualty due to a man-made or natural disaster. 
    • A spouse, co-owner, or any resident of the home dies.
    • You became divorced or legally separated.
    • You or your spouse gave birth to two or more children in the same pregnancy.
    • You became eligible for unemployment compensation.
    • Loss of ability to pay for basic living expenses due to extenuating circumstances.

 

For a more detailed look into who qualifies, visit the IRS’s Publication 523, which contains helpful Introductory Material for those selling their home and wondering about taxes. Now that you probably have a good idea of whether or not you qualify for tax exemption for the income from the sale of your home, stay tuned for Part 2 of Everything You Need to Know About Taxes and Selling a Home, which will tackle more complex subjects such as your tax return, gain on sale and capital gain, adjusted basis, and more.

Tammy Hetrick
Tammy Hetrick
23:39 12 Sep 22
Friendly service. Great chips and salsa. We came for the margaritas. We've been here a few times for dinner and always enjoy the food.
David Stanley
David Stanley
23:05 12 Sep 22
Spam company, keeps calling and texting to buy a home that I don't own & won't stop
Mike Straub
Mike Straub
23:33 29 Aug 22
Kip came over & offered to steal my beautiful home for a terribly low price, then made an appointment to come back with his partner a few days later, but didn't show up or even call to let us know he wasn't coming
Tyler Smith
Tyler Smith
22:19 04 Jul 22
An amazing team to do business with! Highly recommend!
Tiare Johnson
Tiare Johnson
15:50 08 Jun 22
I didn’t have to worry about a real estate agent, closing costs, & a lot of things that you have to take care of when you sell a house in a traditional way. I like the fact that it was fast, easy, & everything went great! Jamie is fantastic to work with!
Christopher Jenks
Christopher Jenks
19:38 31 May 22
Very communicative and trustworthy group of professionals. The selling process was transparent and fast. Definitely worth considering...
Karen Wheeler
Karen Wheeler
18:31 22 May 22
Great team to deal with
Kailey Bowman
Kailey Bowman
07:08 22 May 22
Mo F
Mo F
23:51 20 May 22
We had an awesome experience!! Jamie Kirk is amazing and made our experience great!!
Jcbbowman1987
Jcbbowman1987
18:42 20 May 22
The best in the business!
peter maiers
peter maiers
04:13 20 May 22
Easy fast and I trusted them ever step of the way !! great team of people all interested in doing everything correctlyPeter B
Connie Bowman
Connie Bowman
02:38 20 May 22
Fantastic Company!
Britne Salsbury
Britne Salsbury
02:34 20 May 22
Casey and his team and are amazing! They are organized and have great follow up. A really great group of people to work with!
Denise Klein
Denise Klein
01:43 20 May 22
Casey Ryan is an incredible professional when it comes to the needs of sellers that need to sell their homes off market. As a real estate agent I always recommend Casey to anyone looking to work with an off market buyer. He is honest, trustworthy & always looking for win-win solutions for everyone involved! The real estate market is better because of Casey & his company, We Buy Any House
jose moran
jose moran
22:43 19 May 22
Chandler Gentry
Chandler Gentry
21:56 19 May 22
This team is so amazing! Makes everything so easy and super reliable!
Amanda Jones
Amanda Jones
21:30 19 May 22
Alex Moses
Alex Moses
20:09 19 May 22
Best company to work with in the real estate game. ABSOLUTELY BEST CUSTOMER SERVICE IVE EXPERIENCED!!
Kyle Mellies
Kyle Mellies
20:06 19 May 22
Donald Gibson
Donald Gibson
19:41 19 May 22
Great communication and pleasant to work with! Everything went smoothly!
Josh Wathen
Josh Wathen
19:40 19 May 22
The team at We Buy Any Vegas House are extremely thorough and very kind. They go above and beyond to help you through the process. I would highly recommend.
Devin Flynn
Devin Flynn
19:34 19 May 22
Jamie was an absolute rockstar for us! She went above and beyond all our expectations, do not hesitate to go with them!
Blake Friedman
Blake Friedman
18:26 19 May 22
Casey Ryan and his team from We Buy Any Vegas House are the best in the game! Highly recommend!
Andrew Brannick
Andrew Brannick
18:12 19 May 22
Worked with Ryan on the sale of my Vegas property, I thought it was going to be a little difficult being out of town in Arizona. Ryan walked me through the process of selling and was able to get me an offer that was higher than I was expecting. He handled everything for me and made the process easy and really quick which was what exactly what I was looking for! Would 100% recommend for anyone looking to sell their house
Jared Vidales
Jared Vidales
17:50 19 May 22
Great service, great pricing. Sold my mothers house to them, and they handled it with care.
Kathy Hallett
Kathy Hallett
17:49 19 May 22
Jamie immediately helped me feel comfortable and the whole process was quick and hassle free! 5 stars
Melani Kirk
Melani Kirk
17:33 19 May 22
Jake Groves
Jake Groves
16:29 19 May 22
Local to Vegas and they are the best. I spoke to every cash home buyer in Vegas. Most of them just low-balled me over the phone. Ryan met me at the property and made an offer, which turned out to be the highest. He also agreed to close with the difficult hoarding tenant still there. Jamie supported me through the escrow process, she was very responsive to any questions I had and kept me informed during the closing. Less than a 30-day escrow. I spoke to a few of the team members over two months as I was getting other offers and all of them were easy to talk to and patient. They have a great team and make sure you include them in your decision-making.Thanks againJG
Joe Skaggs
Joe Skaggs
16:14 02 May 22
S Holt
S Holt
19:49 27 Apr 22
The first person I met was Allen. He immediately made me feel comfortable and confident in dealing with this company. I'm chronically ill. Allen is the only real estate person I'd let in my home.Throughout the process I ended up dealing with the whole team. Jamie deserves a medal for the hurdles she can overcome. Ryan is great at fixing problems and handling the big stuff, with a whole lot of support from Jamie. Allen was always available for me and checking in. He is great at answering questions in a way you understand and I always felt comfortable talking to him.Here is the actual email I sent the team today: "Hi everybody. Just wanted to thank you all again. I'm already able to do so much more for myself, I feel like a new person. I love my cute little house. I love the cold. It even snowed my 3rd day here. Because I'm able to move around, go outside, see people, clean the house, run errands, etc I'm starting to walk much better and even breathe better. And I haven't even seen a doctor yet. I don't feel like I'm a prisoner in my house anymore. Just wanted to let you know how much of a difference you make."My sale hit a few snags. But I'm the end, everything worked out just as they promised, for the amount they promised. These are great people to trust. (PS… Don't worry if they use O.D. I thought it was a scam of some kind. It wasn't. I just didn't understand).
Anabel Alvarez
Anabel Alvarez
17:05 12 Oct 21
Thank you WBAVH! Charles and Ryan were professional, personable, and patient with our needs and requests. The process was a breeze and they answered all of our questions in detail. They made us feel comfortable and part of their family. Will be recommending to everyone I know!
Steven Kaplan
Steven Kaplan
07:40 18 Aug 21
jerry gallegos
jerry gallegos
16:18 09 Aug 21
Very nice and helpful, responded to any questions very quick. I will do business with them again when I buy my next house.
Christopher Kampshoff
Christopher Kampshoff
00:30 07 Aug 21
Thank you so much guys, my brother was in a tight spot I appreciate you coming through. He's in a much better situation now. Again thank you.
Kelly Brown
Kelly Brown
18:48 27 Jul 21
I attempted to work with Allen, from this company. He seemed very nice and I was curious about what their company would give me for my home, if there were no realtors commissions involved. He said he needed to see the house. He came over and took a bunch of pictures and said he would talk to his partner Ryan, (the numbers guy), and get back with me in a half an hour. I didn’t hear from him that day. The next day I received a text from him, saying he would contact me on Monday. On Monday, he texted to see if I could talk at 12:00? I said, yes, he never called. Tuesday I receive a call from a random realtor telling me that Allen’s company has referred me to him. I call Allen, of course, to ask him what the heck is going on and he says yes, I work with this realtor, but I didn’t give him your information, he pouched it from our website!! I then say, so are you going to work with me and I find out, exactly what I already knew, they couldn’t offer enough money for my house, so they are not going to make an offer, HUGE SURPRISE!! #1, if you want your personal information safe, do not work with this company and #2, if you want a good offer on your home, don’t work with this company. I bought my home 3 years ago, it’s in great condition, in a great zip code and the market is through the roof!! If you can’t buy a house and get close to what someone needs financially right now, I don’t know when you can! Pick another company besides this one!! There are many!! Stay far away from this particular WE BUY HOUSES FOR CASH!!! You have been warned!!!
Carolyn Gobel
Carolyn Gobel
18:16 22 Jul 21
This company helped keep us from foreclosure. Thank you!
Carlos Caballero
Carlos Caballero
19:15 23 Jun 21
Thank you guys for your help with my Grandmas home. It was in rough shape and she left so much stuff. We couldn’t have taken on cleaning it out and the project.
jesse phalin
jesse phalin
01:29 18 May 21
Thank you, Thank you, Thank you! Went above and beyond assisting me through this process. Helped me move my things and even let me leave what I wasn’t taking with me. Thanks for all of the hard work.
Kelly Stewart
Kelly Stewart
21:27 08 May 21
My husband handled the process but felt good dealing with this local company and they did not try to change price after seeing the house. They actually offered higher once they saw our home. Had 5 companies come our to give us bids and they all were bait and switch. They beat everyone’s offers too. We tried to list before and couldn’t sell. I don’t know why anyone would work with head aches of real estate agents and paying commissions, banks, inspectors and the time to close only to walk away with the same money. Thank you Ryan and Jamie.
degan Stewart
degan Stewart
21:23 08 May 21
Thank you guys so much. Jamie is so sweet and on it. Ryan Is one of the most genuine people I’ve met in Vegas. They did what they said they’d do when they said they would and kept us in the loop the whole time
Brian Higgins
Brian Higgins
22:00 04 May 21
Thank you guys so much for everything. Ryan and Jamie Helped me find a place to get out of our old place. It was so nice to have the moving company just handle everything for me.
Sheila Winn
Sheila Winn
19:05 09 Apr 21
I struggled with the idea of selling my house to a "flipper". This company was fair, professional and extremely helpful every step of the way. I never had to wait for a response from Kelly Schnippel when I had a question or concern.I personally would recommend them to anyone looking to get a fair price for their property all the while getting kindness, professionalism and assistance from the buyer.Thank you Kelly Schnippel! I appreciate YOU and your team!Sheila Winn
Valerie Grijalva
Valerie Grijalva
17:30 27 Feb 21
Casey and his team will handle your transaction with the upmost professionalism and class like no other. Their knowledge in real estate will exceed your expectations and you won't be disappointed from beginning to end with their communication and systems to ensure your goals are met. I highly recommend Casey and his team!
Ann Reback
Ann Reback
18:51 25 Feb 21
Thank you for your professional and personal help in this process. You and your team have been so knowledgeable, responsive, courteous and kind...understanding my goals and executing each step in a timely and professional manner! THANK YOU! I will recommend you and your team to friends and others in our community.
Aviv Ben Shimon
Aviv Ben Shimon
16:38 25 Feb 21
Jess Lapensee
Jess Lapensee
16:31 25 Feb 21
From start to finish the selling process was quick and easy!
Lynne M
Lynne M
04:52 24 Jun 20
I have nothing but positive things to say about this company! I needed to sell a house quickly after a death in my family. I spoke with several Cash for Houses Companies in Las Vegas and settled on We Buy Any Vegas House. Everyone was very sensitive about my situation, helpful, answered all my questions and extremely responsive when I called. Ryan and Kelly were awesome!After we settled on a price everything went super smoothly in escrow and again if I had any concerns or questions there was immediate feedback. Also the fact that I was able to do this remotely as I live in California was extremely helpful! I am so grateful for all the help I received during a very challenging time in my life.
Freddy Aleman
Freddy Aleman
18:47 27 Dec 19
My wife and I recently bought a home from Casey Ryan. The home we purchased is located in Centennial Hills. Gorgeous remodel. Casey and his team did a great job of designing the home. We ran into a couple of issues shortly after moving in. Casey had his people out quickly during Christmas week to make a couple of repairs. He gave my wife and I peace of mind during a chaotic holiday week and for that we will always appreciate him. I would recommend a Casey Ryan home to my friends and relatives.
Angela Rienstra
Angela Rienstra
21:06 26 Dec 19
I needed to sell my house from out of state ASAP. I looked into some other larger name companies and was disappointed with their turn-around time and lack of customer service. I'm so grateful to have found Ryan (and Kelly)! They understood my time crunch and moved heaven and earth to buy my house at a fair price and closed by the promised date. They were with me every step of the way and offered world class service! 100% would recommend to anyone!
Sue Kuckelmann
Sue Kuckelmann
17:02 16 Nov 19
We couldn’t be more pleased with the service provided. From start to finish the team was professional and extremely helpful. All the deadlines were met or exceeded even when I was in Arizona and my husband was in Las Vegas. I would recommend them to anyone who is looking to sell in Las Vegas.
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