Homes For Sale

In May of 1997, the tax code governing profitÂ- A new job that is 50 miles further
from the sale of a personal residence wasaway from the home than the current job.
changed. In the past, any gain from a home forOtherwise, if you drove 20 miles to your current
sale could be taxed, unless rolled over into thejob, then the new job must be at least 70 miles
purchase of a new home.from the home to qualify for an exemption.
The new Internal Revenue Service rules are moreÂ- Your home was damaged from a
advantageous to sellers of homes for sale. Younatural or manmade disaster, and you were
can no longer roll a gain into the new home;forced to sell it.
however, not all gain is taxable as in the past.Â- Perhaps an act of war or terrorism has
Now, homes for sale have the first $250,000 ofcaused the move.
profit exempt from any taxes, if you are theÂ- Even the birth of twins, triplets and so
owner and filing single status. If you file jointlyon, made the current home for sale too small and
with your spouse, your homes for sale gain is taximpractical to keep.
exempt up to $500,000 - this is a half-millionIRS publication 523, "Selling Your Home", covers
dollars, tax-free profit. This means that if youmany other unforeseen events that would qualify
purchased a home for $200,000, you could sell ityou for an exemption.
for $450,000 as a single or $700,000 as a coupleWhen you do not meet the time and resident
and incur no taxes on the profit.test but qualify under one of the unforeseen
There is, however, a time and resident test thatevent exemptions, you receive only a partial
must be met in order to receive this taxexemption for the gain on your home for sale.
exemption for your homes for sale profit. YouYou will be taxed on a pro-rated amount of the
must have lived in the home for two out of thegain, based upon how long you actually resided in
past five years in order to qualify for the taxthe home.
exemption.If you lived there less than a year, then the profit
What If You Don't Meet the Time &from your home for sale is considered to be a
Resident Testshort-term gain. This means, on the pro-rated
So, does that mean that if you do not meet theamount you owe taxes, you will pay the same
time and resident test you then owe taxes on alltax rate as you do on your 1040 income tax
of the gain? Not necessarily.form.
The tax code allows for several specificIf you have lived more than one year but less
exemptions to the time and resident test, whenthan two in your home for sale, the profit is
you must move due to certain qualifying events.considered to be a long-term gain. Rather than
Here are a few of those events:paying the generally higher income tax rate, most
Â- You must move due to the health ofpeople are taxed at 15 percent. So, if you have
one of the residents in the home (your immediatelived in the home for less than one year, it is to
family) or the health of a relative who is in youryour advantage to remain there until you pass
care.the one-year time mark - if at all possible.
Â- A death in your immediate family thatThe changes in the tax code for profit on homes
incurs the move, such as a breadwinner dies andfor sale is much easier now to calculate and
the spouse cannot afford to keep the home.typically are more advantageous to the seller
Â- Divorce that forces a move.now, than in the past. Of course before making
Â- The unemployment of a breadwinnerany home selling decisions or plans, consult a
(must be qualified for and receiving unemploymentCertified Public Accountant or other tax
compensation) and cannot afford to keep theprofessional.
home.