“Making Money from Selling Your Home? Here’s What You Need to Know About Taxes”

– The median home price has increased in recent years, with the highest prices in the West and Northeast regions.
– Homeowners should be aware of the tax implications when selling their homes, including potential capital gains tax and net investment income tax.
– Homeowners can exclude up to $250,000 (or $500,000 for joint filers) of gain from the sale of their principal residence if certain requirements are met.
– Requirements for the exclusion include owning the property for at least two years and using it as a principal residence for at least two years during a five-year period.
– The exclusion can only be used once every two years.
– Any gain above the exclusion amount will be taxed at the long-term capital gains rate, provided the homeowner owned the home for at least a year. If not, the gain will be considered short-term and subject to the ordinary-income rate. 1. Second homes, like vacation homes, are not eligible for gain exclusion, but can be considered a business asset if they qualify as rental properties.
2. The 3.8% Net Investment Income Tax (NIIT) may apply to home sales if the gain exceeds the exclusion limit and the taxpayer’s adjusted gross income is over a certain amount.
3. The NIIT applies only if the taxpayer’s modified adjusted gross income exceeds certain thresholds based on filing status.
4. Keeping track of the basis of the home is important for an accurate tax basis, including information about the original cost, improvements, casualty losses, and depreciation for business use.
5. Losses from selling a principal residence are generally not deductible, but losses attributable to a portion of the home that is rented out or used exclusively for business may be deductible for tax purposes.

Selling Your Home for a Big Profit? Here Are the Tax Rules