How To Handle The Tax Implications Of Selling A House

How To Handle The Tax Implications Of Selling A House

If you’ve ever considered selling your house, a little research into the tax implications and planning can save you significant time and money. You can click here to read more.

There’s a lot to consider before putting your home on the market, but here are some of the most important things to know when it comes to taxes:

  1. Sell your home at the right time

In general, if you sell within two years of buying it, you’re allowed a tax deduction. If you wait more than two years you lose this deduction, but can still reduce taxes by taking advantage of other tax strategies.

  1. Document everything and keep receipts

The IRS can ask to see copies of all your paperwork – and they always want to see records of any deal that gives the buyer or seller an advantage or makes it easier for them to pay less taxes. Documenting your house sale will make it easier to claim every deduction you’re entitled to and also make it easier to deal with the IRS. They’ll know you’ve got your records straight and be less likely to ask you for more information.

  1. Know the rules

Based on your personal income and a bunch of other factors, there are different rules for deducting mortgage interest, real estate taxes and capital gains tax when selling a house. Be sure you know what applies to you.

  1. Know the IRS penalties if you underpay taxes on your home sale

The IRS can charge interest and penalties if they think you underpaid your taxes by not including all your income or paying too little on capital gains. Know the rules and plan ahead to avoid this.

  1. Be wary of commission fees and taxes on commissions

You can’t write off the commission your real estate agent takes as part of your home sale. The only way you’re entitled to a deduction there is if you’re just selling a share of the house between two family members – typically, parents and children who own together – and then only if you sell the entire house at one time (as opposed to selling it off piece by piece).

  1. Don’t take a loss

If you sell your home for less than you bought it, use the tax rules to reduce or eliminate your taxable capital gain. You can only do this if selling the house for less than it was worth when you bought it didn’t result from certain personal or financial reasons, like a divorce, job loss or an unsellable house.