Happy end of tax season, everyone! We get it, you’re probably just about ready to wave goodbye to anything related to taxes. While this is fine for most Americans out there, quite a few should wait before they forget about taxes. People who are planning on selling their homes in the next several months, or have just recently sold their homes, should start preparing their tax plans now since there are several write offs in place that can save them quite a lot of money if they go about the process properly. For those who are planning on selling your homes soon, follow these tax tips so that you can maximize your 2019 return.
There is a major tax exclusion in place that benefits just about anyone who sells a house with only a few caveats. The first is that you must have lived in the house for two or more years within five years before you sell it. Second, you can’t have used this same exclusion on another property you sold within the past two years. Easy enough, right? Now here’s the exclusion.
Sellers don’t have to pay taxes on the first $250,000 of the sale if they’re filing as single, and don’t have to pay taxes on the first $500,000 of the sale if they file jointly. This is a fairly major tax break given the fact that the median cost of a home in the United States lies at around $200,000.
What if you don’t meet the requirements?
Luckily, the exclusion isn’t all-or-nothing in the regard that if you lived in the house for under two years, you may still be eligible for a portion of it. If you have a legitimate reason for why you had to sell the home so quickly, like job loss, deployment, or illness, then you may only have to pay taxes proportionate to how long you’ve lived there. For instance, if you’ve lived there for a year, and you’re filing as single, then you’d have to pay taxes on anything over $125,000 (half of $250,000), since one year is half of two years.
Other write offs to look out for
In addition to this exclusion, which is already pretty substantial, there are several tax write offs for sellers that can work in your favor!
- Real estate agent commission: Real estate agents make money off of the commision from the sale, which you can normally write off when filing!
- Closing costs: If you hired a titling company to assist with the closing, the associated costs count as a write-off.
- Advertising: If you paid money to advertise that your home was on the market, you can write those expenses off!
In the rare case that you decided to go the seller financing route, or directly lending to the person who is purchasing your house, you may be eligible for several more tax benefits, so be sure to consult with a financial advisor if you go this route.
Finance Wand exists to help you understand finances and benefit from this knowledge! Whether you’re selling your home or not, we suggest you stay on top off all things tax related. It’ll only help you in the long run.