What to Know Before Buying or Selling A Home: Tax Edition

Updated: Jun 20, 2019




Summer is the most popular season to sell one’s home and you might be in a place where you have considered to either buy or sell your home. Whether you are on the buying end or the selling end, this blog will highlight some important tax insights to stay aware of.


Definition of a Home

A home is defined as a house, condominium, mobile home, house trailer, boat, or any similar property that has sleeping, cooking, and toilet facilities.


Know the Basis of the Home

This is amount could be how much you paid for the home. You can raise the basis of your home by adding improvements. For example, if you bought a home for $90,000, your home basis would be $90,000. But if you added $10,000 of qualifying improvements to your home, your home basis would now be $100,000. There are also things that can decrease the basis of your home. Whenever you make large changes to your home, we recommend keeping records to show your accountants and we can help determine if it counts as a qualifying improvement.


What Can You Exclude?

The home exclusion which saves many people from the pain of paying capital gain tax. Single taxpayers can exclude up to $250,000 from the gain. Married couples can exclude up to $500,000.


Make Sure You are Eligible

In order to take the exclusion from the home sale, you need to qualify. There are two “tests” you must pass. If you are married only one spouse must qualify.

1. The residence test- You must have lived in the home for at least two of the last five years.

2. The ownership test- You must have owned the property for two of the last five years.


What If You Aren’t Eligible?

There are a variety of other factors to consider when you sell your home, like what if you have more than $250K in gains or you haven’t lived in the home for 2 years? If you’ve owned the home less than one year, any gain over the excludable amount is taxed at a rate that will be the same as your ordinary income tax rate. If you haven’t lived in the home in the last two years, and you’ve owned the home longer than one year, then regular capital gains tax rates will apply on the sale of the home. If you have more than $250K (or $500K for Married) in gains, then you will be subject to the capital gains tax rate for anything over your exclusion amount.


A home will most likely be the biggest asset you’ll own and when it comes to selling it you will probably want to avoid losing as much of that profit as possible. For more in-depth tax planning for selling, or adding improvements to your home, etc. contact our team of tax experts to help you plan. You can reach us by calling 417-833-8811 or 618-281-9700, or by emailing info@obregonandassociates.com.



sources: https://www.thebalance.com/will-i-pay-tax-on-my-home-sale-2389003, https://www.thebalance.com/deducting-house-sale-expenses-3974006

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