6 Tax Related Myths About Selling Your Home

Dated: February 24 2017

Views: 2568

Image title1. You can claim the capital gains exclusion for any number of homes. You can only claim the exclusion for one house at a time. For purposes of the capital gains exclusion, the sale must be your principal residence. That means that you can’t claim the exclusion and then claim the exclusion for a vacation house or other property that use for investment purposes. However, if you sell your primary home and move into your vacation house or investment

2. You’re stuck with a capital gain on the sale of a house since you can only offset the gain with a loss from another sale of a house. Notwithstanding the fact that you can’t claim a loss on the sale of your home (see #6), gains don’t have to match up in order to offset. You don’t have to offset gains from stocks with losses from stocks or gains from bonds with losses from bonds. The same idea is true with gains from the sale of real estate. With few exceptions, a gain is a gain is a gain. While it’s true that you must report and pay tax on capital gains from the sale of a personal residence, the converse is not true.  – no matter how much it hurts.

3. You can deduct the cost of painting and other improvements for the purpose of getting the house ready for sale. It can cost some money to get your house up to snuff before sale especially, as with mine, if your house rebels on principal to the idea of being sold. Expenses related to merely improving your personal residence are never deductible. There is a ray of sunshine, however: in most cases, significant repairs to your home increase your basis for purposes of calculating a gain or a loss at sale, but your run of the mill home repair expenses – even if significant – are not deductible.

4. “Obamacare” imposes a 3.8% additional tax on the sale of all real estate. Under the new health care law, a Medicare tax of 3.8% will be imposed on investment/unearned income for high income taxpayers. High income taxpayers means those individual taxpayers reporting income over $200,000 and married taxpayers filing jointly reporting income over $250,000. Investment income includes, for this purpose, gain from the sale of your home. But wait: the $250,000 exclusion (or $500,000 for married taxpayers) still applies for purposes of the Medicare tax no matter what your income level. If your income is below the threshold, the Medicare tax does not apply. If your income is above the threshold but your gain is under the exclusion, the Medicare tax does not apply. If your income is above the threshold and the gain from the sale of your home is more than the exclusion, the Medicare tax does apply but only on the portion of the gain that’s more than the exclusion amount.

5. Moving expenses are always deductible. Gosh, this would be awesome if it were true – only it’s not. You can only deduct moving expenses which are work-related and even then, there are strict rules about qualifying expenses. Moving expenses when you move for personal reasons – even if they’re really, really good personal reasons – are never deductible.

6. You can’t claim the capital gains exemption if you’re not living in the house at the time of sale. For some reason, many taxpayers think you have to live in your house while it’s listed in order to claim the exclusion. Nope. The exclusion – which is up to $250,000 of the gain from your income ($500,000 for married taxpayers) is available to taxpayers who have owned and lived in their home for two of the five years prior to sale. The years don’t have to be sequential: you can live in the house in year one and in year five and still qualify. However, if you’re planning on renting your home out while you’re there, it complicates things a bit and you’ll have to pro rate the exclusion accordingly. 

So there you go. If you’re contemplating selling your home, you should be all set. But do me a favor? Ask your tax professional if you have any additional questions. 

Tax Solutions with offices in Rockland, Westchester and NYC, is a great resource to answer all your tax related questions. More information at www.taxsolutions-usa.com


Reference: Forbes Magazine


Blog author image

Christian Parker

After forming and running his own successful technology company, Christian set his sights on exploring a growing passion for Real Estate. He purchased his first property at 23 years old and since then....

Want to Advertise on this Site?

Latest Blog Posts

Corn Mazes Near Nyack

I don't know about you, but the mere thought of being in a corn maze gives me an anxiety attack! But, for those who are interested, there are a couple mazes within an hour drive of Nyack. They are:

Read More

Fall Apples And Apple Cider Vinegar

Fall is my favorite season in Nyack and everywhere else. The cool, crisp air and the fresh apples have always been the best parts of the season for me. And, now I've learned how to make my own Apple

Read More

August Holidays You Probably Did Not Know About

It seems there's a new holiday every time I turn around! There are some interesting ones in the month of August and I thought you'd like to know about them. My favorite? Probably the "Just Because"

Read More

Killing Weeds Naturally Around Nyack

I don't know about you, but my flower beds need a thorough de-weeding! Because of my dogs, though, I don't want to use chemicals to accomplish the task. So, here are some other ways to keep the

Read More
Fair Housing Icon NY Fair Housing Notice