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Homes For Sale

In May of 1997, the tax code governingafford to keep the home.
profit from the sale of a personalÂ- A new job that is 50 miles further
residence was changed. In the past, anyaway from the home than the current job.
gain from a home for sale could beOtherwise, if you drove 20 miles to your
taxed, unless rolled over into thecurrent job, then the new job must be at
purchase of a new home.least 70 miles from the home to qualify
The new Internal Revenue Service rulesfor an exemption.
are more advantageous to sellers ofÂ- Your home was damaged from a natural
homes for sale. You can no longer roll aor manmade disaster, and you were forced
gain into the new home; however, not allto sell it.
gain is taxable as in the past.Â- Perhaps an act of war or terrorism
Now, homes for sale have the firsthas caused the move.
$250,000 of profit exempt from anyÂ- Even the birth of twins, triplets
taxes, if you are the owner and filingand so on, made the current home for
single status. If you file jointly withsale too small and impractical to keep.
your spouse, your homes for sale gain isIRS publication 523, "Selling Your
tax exempt up to $500,000 - this is aHome", covers many other unforeseen
half-million dollars, tax-free profit.events that would qualify you for an
This means that if you purchased a homeexemption.
for $200,000, you could sell it forWhen you do not meet the time and
$450,000 as a single or $700,000 as aresident test but qualify under one of
couple and incur no taxes on the profit.the unforeseen event exemptions, you
There is, however, a time and residentreceive only a partial exemption for the
test that must be met in order togain on your home for sale. You will be
receive this tax exemption for yourtaxed on a pro-rated amount of the gain,
homes for sale profit. You must havebased upon how long you actually resided
lived in the home for two out of thein the home.
past five years in order to qualify forIf you lived there less than a year,
the tax exemption.then the profit from your home for sale
What If You Don't Meet the Time &is considered to be a short-term gain.
Resident TestThis means, on the pro-rated amount you
So, does that mean that if you do notowe taxes, you will pay the same tax
meet the time and resident test you thenrate as you do on your 1040 income tax
owe taxes on all of the gain? Notform.
necessarily.If you have lived more than one year but
The tax code allows for several specificless than two in your home for sale, the
exemptions to the time and residentprofit is considered to be a long-term
test, when you must move due to certaingain. Rather than paying the generally
qualifying events. Here are a few ofhigher income tax rate, most people are
those events:taxed at 15 percent. So, if you have
Â- You must move due to the health oflived in the home for less than one
one of the residents in the home (youryear, it is to your advantage to remain
immediate family) or the health of athere until you pass the one-year time
relative who is in your care.mark - if at all possible.
Â- A death in your immediate familyThe changes in the tax code for profit
that incurs the move, such as aon homes for sale is much easier now to
breadwinner dies and the spouse cannotcalculate and typically are more
afford to keep the home.advantageous to the seller now, than in
Â- Divorce that forces a move.the past. Of course before making any
Â- The unemployment of a breadwinnerhome selling decisions or plans, consult
(must be qualified for and receivinga Certified Public Accountant or other
unemployment compensation) and cannottax professional.



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