It’s almost that time of year… yes, tax season is almost upon us! If you’re selling a house in Fort Myers, you’ll want to make sure you’re prepared for tax time. These tax tips for selling your home can help you save money and navigate the process more easily. Please note, this article is for informational purposes only—consult a trusted tax professional or the IRS for specific advice related to your situation!
Not All Profits Are Taxable
One of the major benefits of selling your home is that you can exclude a significant portion of your profits from taxation. In most cases, you can exclude up to $250,000 of the profit from your tax return if you are filing individually, or $500,000 if you’re filing jointly with your spouse.
However, if you sell your home for a loss, you will not be able to claim a deduction for that loss.
This deduction is only available when selling your primary residence. You must have lived in the home for at least two of the last five years to qualify for the exclusion. Additionally, this exclusion can only be claimed once every two years.
It’s important to keep your address updated with the IRS whenever you move, as they will use this to verify your tax records.
Other Exclusions
Even if you don’t meet the requirements for the full exclusion, you might still qualify for a partial exclusion of profits. Special conditions allow for prorated, tax-free gains in certain situations, such as:
- A job change
- A health-related move
- Other unforeseen circumstances
If you are selling due to any of these reasons, you may be able to exclude a portion of your profit. Make sure to consult a tax professional to determine if you qualify for these special exclusions.
Reporting the Sale
You may need to report the sale of your home if you receive a 1099-S form from the closing agent. This form is used to report proceeds from real estate transactions to the IRS.
To avoid receiving this form, make sure you are able to exclude all profits from the sale. If the closing agent issues the form, even if you don’t owe any taxes, you’ll still need to file it with the IRS.
Capital Gains Taxes
If you’re selling an investment property or a home that you’ve owned for a short period, you could be subject to capital gains tax. The amount of tax you owe depends on your income level:
- Lower-income individuals may pay no capital gains tax.
- Higher-income individuals can pay up to 20% on their capital gains.
If you sell a property that has been held for less than one year, the gain may be taxed as ordinary income, which can result in a higher tax rate.
First-Time Homebuyer Credit
If you received a First-Time Homebuyer Credit when purchasing your home, you may be required to repay part or all of the credit when selling. Generally, if you sell the home within 36 months of purchase, the credit must be repaid.
For detailed rules, refer to Publication 523 from the IRS to understand how this might apply to your situation.
Deduct Selling Costs
When selling your home in Fort Myers, be sure to keep track of all the selling costs you incur. Many of these can be deducted from your taxable income, which can significantly reduce the amount of taxes you owe.
Some deductible costs include:
- Closing costs
- Home improvements made to help sell the property
- Agent fees
- Marketing costs
- Property assessments
Every cent you spend while selling your home can add up to substantial deductions come tax season. Be diligent about recording all these costs.
Seek Professional Advice
Regardless of when you decide to sell your home, it’s always a good idea to consult with professionals. Your real estate agent, accountant, and attorney can guide you through the process and help you minimize any potential tax liabilities.
Don’t Stress About Taxes!
Selling a home in Fort Myers doesn’t have to be stressful, especially when it comes to taxes. With careful planning and by taking advantage of available exclusions and deductions, you can avoid giving away too much of your profit to Uncle Sam.
Good luck with your sale, and remember to consult with professionals to ensure you get the best tax outcome!