Selling Your Residence
Many people still believe that if they sell their primary residence, they have to buy a more expensive one. This is no longer true.
Under the current law, you must have owned and occupied your home for two of the previous 5 years in order to exclude gain of $500,000 for married filing joint and $250,000 for single or married filing separately.
At the time Congress passed this law, a $500,000 gain seemed like only the very rich would be taxed on gains on their houses, but since then houses have appreciated at a very rapid pace. If you have been in your house for more than two years, chances are good that it has doubledor come close- in value. Of course, this isn’t universally true. Prices in the Midwest, in particular, have held steady or declined and recently in most areas home prices have remained the same or declined.
Because houses have appreciated so greatly, taxpayers should keep track of all improvements they make to their houses. Establish a folder in which you keep your closing (HUD) statements and receipts of all improvements made to the house. At the time you sell, you should bring to your tax professional the HUD statements from when you purchased and when you sold the property, as well as receipts of all improvements. This will help to reduce your gain, so that you will pay less or no tax.
There are exceptions to the two years of ownership and two years of occupancy rules. If you have changed place of employment, (50 miles further from your home than your previous place of employment was), have had a change in health and need to move to receive better treatment, or had other unforeseen circumstances, such as involuntary conversion of the home, natural or manmade disasters resulting in casualty to the home, death, unemployment, divorce or legal separation, or multiple births from the same pregnancy.
There are many more details relating to the sale of your home. Prior to putting your home on the market, it would be wise to consult your tax professional to learn how the details might apply to your specific circumstance.