Selling your home is a critical financial decision that can have an effect on your personal finances for years to come. Why is the decision to sell your home so huge? For one important reason—for most people it is the biggest asset they own. There are a lot of things to consider before making such a large financial decision including how selling your home may affect your income taxes.
The sale of a home is something that must be reported on your personal income tax. While some tax breaks are available to homeowners from the IRS, you must have used your home as your primary residence for at least 2 out of the last 5 years. The capital gains exclusion for single tax payers is $250,000 and for married tax payers filing joint returns, it is $500,000.
The capital gains tax is based on the price you sold your home for minus any other costs such as deductible closing costs, selling costs, or your tax basis in the property. To help you calculate what your profits are, you can use a capital gains calculator. For more information about capital gains taxes, you can also check out this IRS Publication.
Selling your home is a big decision and you have to weigh all the financial considerations carefully. The good news is–you may not even have a tax obligation unless you have a large profit on the sale of your home. To make sure you are taking advantage of all the tax breaks available on the sale of your home, consult a CPA to go over all your options.