The real estate market has been picking up these past few months, and if you’re living in Atlanta or in the north-Atlanta suburbs there is a good chance your home has finally started to increase in value due to inventory shortages in this area. This could be a good time to sell if you’re looking to relocate. Another piece of good news is that the tax law allows for a pretty nice exclusion of the gain you may have on the sale of your home.
How much of the gain from the home sale is exempted from tax?
You can exclude up to $500,000 in home-sale profits from your taxes if married filing jointly, or $250,000 if single. To qualify for this exclusion you have to have owned and lived in the home as your principal residence at least two out of the five past years. You also must not have excluded the gain on sale of another home within two years prior to this sale.
How is the gain on sale calculated?
To calculate the gain on sale you subtract the initial purchase price, any significant home improvements made to the home other than repairs, and selling expenses (real estate commission) from the sales price. If you had a home office in the home reported on your tax returns, the allowable depreciation over the years - whether claimed or not - must be added back to the cost basis of the home.
Selling price – (Original Purchase Price + Home Improvements + Selling expenses) + Prior Year Home Office Depreciation Allowed = Gain of Sale
Exceptions to the Time and Ownership Rule:
There are a few exceptions to the time and ownership rule like divorce, change in health, death of a spouse, multiple births, and job relocation (50 miles or farther than the distance was from your old home to your old job). In these cases you can exclude a percentage of the gain on sale based on the time you lived in the home. As an example, if a spouse passes away after one year of the couple’s time living in the home, half the amount ($250,000) can be exempted if the surviving spouse sells the home.
Please note that a home sale loss cannot be deducted as a loss on your tax return.
Please see IRS Publication 523 for more details regarding the sale of a home or contact our Kennesaw office. We'll be happy to assist you with any of your tax issues.
Michael Allen, CPA
Allen & Company, PC
(770) 428-6229 (T)
(770) 425-5481 (F)
Allen & Company, PC - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta. Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses. Extensive experience working with franchised quick service restaurants and other franchised businesses.