Taxing the Sale of your Home
August 19th, 2010 | 
Author: Most home sellers are very excited about the closing day. Anticipate seeing a very large selection, usually the largest selection of summer to any ownership or investment that have sold. But come the following April 15, the counter will ask if there are any taxes to be paid on profits.
Most home sellers are very excited about the closing day.
When Tax Act of 1997 passed, the rules on home sales have completely changed. Many home sales that were not taxed under the old law may now be subject to tax. But many people who could have paid taxes on profits from their sale house under the old rules, pay nothing under the current law.
There are three tests to meet so that the profits from their sale of home excluded from income tax:
1. Use Test: You must have lived in the house for two years out of the last five years.
2. Property test: You should have used the house sold as your principal residence for any two years out of the last five years.
3. Timing test: You should not have excluded gain from the sale of another home in the last two years.
If you meet all three tests, you can exclude from your taxes up to $ 250,000 of profit if you are single, or even $ 500,000 of profit if you are married, presentation together. If only one spouse meets the criterion of ownership, the total exclusion is permitted provided that both spouses meet the use test. Or, if one spouse has a tax-free sales in the last two years, the other spouse can exclude $ 250,000 and sell for profit. If two unmarried people have a house together and both live there, each can exclude up to $ 250,000 of gain. Even if you do not meet the test to use because you do not live at home for at least two years, you may still qualify for a partial exclusion. If you have a second (vacation) home, the tax law does not apply, because you will not meet the test of ownership.
