Taxes When Selling a House
Here's a typical scenario. Brian in Louisiana has owned and lived in his house for three years. He plans to sell the house for $150,000, and he bought the house for about $105,000. Brian asked, "What kind of taxes do I have to pay when selling? I know have to pay realtor fees, but what, if any, other taxes are applicable?"
There may be transfer, stamp, or property taxes to be paid when selling a house, and those taxes are listed in detail on the settlement statement prepared by the title company during escrow. However, there should be no federal income taxes. The tax code allows taxpayers to exclude up to $250,000 in capital gains ($500,000 if married), provided that the taxpayer has owned and lived in the property as their main home for two out of the past five years.
In Brian's case, his capital gain of approximately $45,000 would be completely tax-free since he has owned and lived in the house for three years.
Taxpayers who are selling their principal residence before meeting the two-out-of-five-year rule should consider determine if they qualify for a partial exclusion of their gains. The tax code allows taxpayers to exclude a portion of their gains if they are selling to relocate for work, for health concerns, for due to unforeseen circumstances. Taxpayers will also want to accurately calculate their capital gains to avoid paying more taxes than they need to.
More information: Selling Your Home | IRS Publication 523 | Code Section 121
Great information. I have a question, though. I’ve lived in my house for 3 years, and my hubby and I are moving out of state with no intention of buying a house again for another ~2 years. Does this change the tax rule as far as our income from the sale of our current home?
No, you can take the capital gains exclusion even if you don’t buy another house.
I bought my home 23 years ago, and married my husband 16 years ago. He and I have lived in it since then. The house has always been only in my name. Can we still make a profit of $500,000 or do I only get $250,000?
I bought an apartment in my native country in 1981, after marriage. It was my main residence until I immigrated in 1995 in US. Then, I divorced in 2000 and sold the apartment in 2007 for E85,000 (approximately $112,000), half being my share. I transferred the whole amount of money in the US. We paid the sale tax, realtor tax and some fees in my native country. Do I have to pay taxes on this sale in the US and what taxes and fees can I subtract from my US income tax ? I didn’t have a job this year 2007, I received only unemployment approximately $8,500 and no W2 form.
Some people gave me a hint about filling out the schedule 2555 and form 1040. What is your opinion?
Thank you in advance for your kind answer.
OK –
We own a house in City “A.” My wife and I lived in this house for about 10 years.
We relocated in January 2008 to City “B” where we rent a house. (Move caused by employment.)
The house in City “A” was rented out in February 2008.
I want to buy a house in City “C” while the market is weak (i.e. on/before June 2008).
Given the current market, I doubt my house in City “A” will sell before end of 2008.
QUESTION: With all the alphabet soup (A, B, C) will I be able to exclude any capital gains on House “A” when it finally sells if I already am in House “C” (or still in the House “B” rental)? Let us “assume” a sale date of June 2009.
John, you will be able to exclude the gain on house A if you lived there at least 24 months in the five-year period ending on the date of sale. So assuming a sale date of June 2009, and you moved out on January 2008, you would still have 44 months of use (from June 2004 through January 2008), which is greater than the 24 months needed for the exclusion. Some of your gain will be taxable (based on the depreciation and also based on the non-primary use since January 2009).
If you’ve done work on your house, like putting on a new roof, can you get tex brakes when you sell it?
Peggy, the cost of any major improvements and repairs is added to your cost basis in the house, which in turn will reduce your capital gains when you sell in the future.
Mihai, yes this transaction is reported on your US tax return as well, since US citizens and resident aliens are taxed on their worldwide income. The gain will be taxed as a long-term capital gain at the 15% tax rate since you owned the property for more than a year. If you lived in the property for at least 24 months in the 5-year period ending on the date of sale, then you could exclude the gain of up to $250,000. The taxes you paid to the other country would qualify you for a foreign tax credit on your US return.
Form 2555 won’t apply in this situation, because that form is used only for income earned from employment or self-employment while living abroad.