Are you worried about paying taxes on the sale of your house in Colorado Springs? Don’t worry; most home sellers don’t need to report this transaction to the IRS. However, there are a few exceptions to the rule.
In today’s blog, we’ll discuss which home sellers must report to the IRS.
The Two General Rules
There are two rules about the taxation of a home sale, which are known as the “old rule” and “new rule.” The old taxation rule states that up until 1997, anyone over the age of 55 had the one-time option of excluding up to $125,000 of gain on their sale as long as it was their primary residence. The new taxation rule states that anyone, regardless of age, can exclude $250,000 of gain, or $500,000 for a married couple filing jointly.
As you can see, home sale taxes are complicated. Let’s go over some frequently asked questions.
Frequently Asked Questions
Q: Who Qualifies for Tax-Free Gains When They Sell Their House?
A: To qualify for the capital gain tax exclusion on your sale, you must meet the following IRS requirements:
- Pass the ownership test, which proves you’ve owned your property for at least two years
- Pass the use test, which proves you’ve used your house as your primary residence for at least two years. If you rent out your home for part of the year, the amount of gain you can exclude from taxes will be proportional to how much you use it versus rent it.
- During the two years ending on the date of the sale, you didn’t exclude gain from the sale of another house.
Q: What If I Have More Than $250,000 in Gains?
A: You’ll have a tax bill for the number of gains above $250,000, or $500,000 if you’re married. This type of gain is taxed at the capital gains tax rate. To decrease your amount of taxable gains, keep receipts and records of home improvements you’ve made. Fortunately, you can add specific refinements to your cost basis, reducing the amount of reported gain.
Q: What If I Haven’t Owned My House for At Least Two Years?
A: If you’ve owned your home for under one year, any gain over the excludable amount is taxed at a rate similar to your standard income tax rate. However, if you’ve owned your home for longer, the capital gains tax rate will apply; this will likely be lower than your ordinary income tax rate.
Q: Anything Else I Should Know?
A: It’s important to note that if you have a loss, which is when your home is worth less than what you originally paid, you can’t take it as a tax deduction.
Contact ZechBuysHouses LLC
Tax season is difficult enough, and if you plan on selling your home, you might feel overwhelmed. If you’re a resident of Colorado Springs, Colorado, you can sell your house to ZechBuysHouses for a speedy, all-cash offer. Minimize your stress and contact us today.