Homeowners interested in selling a home will need to factor how the home sale will affect their federal and state tax returns. It is also important you do your homework and know a few tips to increase your chances of a sale.
According to Realtor.com, it is a good idea to speak with a tax consultant on various issues, including:
- Costs associated with the home
- If you have acquired the home as a gift or from inheritance
- Whether it was used for business or renting
- Home renovations or additions
Additionally, you should speak with a tax consultant if you purchased the home using gains from a previous sale on which tax was put off before the enactment of the federal Taxpayer Relief Act of 1997. According to this act, a homeowner is allowed to keep capital gains on a home sale of up to $500,000 if they are married or $250,000 if you are single without being taxed. In order to qualify, you have to have owned the home as a principal residence for at least two of the last five years. A separate piece of legislation, the federal Internal Revenue Service Restructuring and Reform Act of 1998, went further and said those selling their home can pro-rate the exclusion if they were forced to sell their home due to a job change, illness or some other hardship of that nature, in order to meet the two-year residency requirement.
