The answer to the question is, more than likely you will qualify to exclude from your income all or part of any gain from the sale of your home. Consider the below items when selling a home:
- Ownership and Use –To claim this exclusion, you must meet the two (2) ownership and use tests which are as follows: During a five-year period ending on the date of the sale your home, you must have:
A: Owned the home for at least two years and
B: Lived in the home as your main home for at least two years.
- Gain on Sale –If you sell your main home and have a positive gain from the sale, you usually are able to exclude up to $250,000 from your income or $500,000 if married and filing jointly and both parties have an ownership in the home. If the gain is less than $250,000(Single)/$500,000(Joint) you do typically do not need to report the sale on your tax return. IRS Publication 523 will help you calculate if you have a gain or loss on your sale.
- Loss – On the other hand, if you experience a loss when selling your main home (selling for less than what you paid for it), you cannot claim it as deductible. So hold out as long as you can because there is no benefit in taking a loss as opposed to stock or bond loss, which is deductible from your income.
- Report of Sale – If you are in the category where the gain is over the $250,000(Single)/$500,000(Joint), you must report the sale of your home on your tax return. If you receive a Form 1099-S, “Proceeds from Real Estate Transactions” you must also report the sale on your tax return.
- Deed in Lieu of Foreclosure – If you are going through a foreclosure proceeding and you agree with the mortgage lender to deed the property back to them in lieu of the foreclosure, the transaction typically results in a cancellation of debt. As such, you might receive a1099-C “Cancellation of Debt” and you must report the forgiven or canceled debt as income on your return. Filing for Bankruptcy can help you avoid any taxable income from a cancellation of debt.
- Other Exceptions – There are exception to the rules for persons with a disability, certain members of the military, intelligence community and Peace Corps workers.
- Owner of Multiple Homes – If you own more than one home, you can only exclude the gain on the sale of you main home as long as it falls within the above stated exclusions (1A and 1B). You must pay taxes on the gain from the sale of any secondary or vacation home.
If you find yourself owing a tax debt of any kind and are wondering how to deal with it, please contact us to schedule an appointment for a free initial consultation. If you would like to discuss your options for dealing with your other debts via Bankruptcy, we can answer all your questions regarding Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, stopping a foreclosure or wage garnishment, avoiding liens, stopping law suits, discharging medical debt, personal loans, payday loans, credit card debt, etc. We can alleviate your stress! We want to help and we can help you!