As the school year draws to a close and the days lengthen, you may be one of the many homeowners who are getting ready to put their home on the market. After all, in many locales, summer is the best time of year to sell a home. But it’s important to think not only about the potential profit (or loss) from a sale, but about the tax consequences as well.
Excluding Capital Gains.
If you’re selling your principal residence, you can exclude up to $250,000 ($500,000 for joint filers) of capital gains – as long as you meet certain tests. Capital gains that qualify for exclusion are also excluded from the 3.8% net investment income tax.
To support an accurate tax basis, be sure to maintain thorough records, including information on your original cost and subsequent improvements, reduced by any casualty losses and depreciation claimed based on business use. Keep in mind that capital gains that’re allocable to a period of “nonqualified” use generally isn’t excludable.
Losses May Be Tax Deductible.
A loss on the sale of your principal residence generally isn’t tax deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be tax deductible.
Second Homes, Installment Sales, and Section 1031 Exchange.
If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any capital gains through an installment sale or a Section 1031 exchange. And if it’s a loss, it may be tax deductible.
Learn More About Capital Gains and Tax Deductibles.
If you’re considering putting your home on the market, Miller Kaplan has more than 70 years of real estate experience in goal-specific accounting, audits, taxes, and business advisory services. We’ll provide insights on capital gains, tax deductibles, Section 1031 exchange, and other tax consequences to consider when selling your home. Contact us today.
We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this impacts you.