did you know- sale of home

Dear Homeseller,

Selling a home can be hectic. In the hustle and bustle of showing your home to prospective buyers and packing your belongings for a move to a new location, you've probably given little thought to the tax treatment of your sales proceeds.

If that's the case, I have good news for you. In most cases, little or no tax is due on the profits from the sale of a home. Under today's tax rules, the first $250,000 of profits ($500,000 if you are married and file jointly) from the sale of a home can be excluded from taxable income. To qualify for this important tax break, you must have owned and used the home as your principal residence for at least two of the five years ending on the date of your sale.

Don't assume, however, that your home sale profits are fully taxable if you have lived in your home for less than two years. A little-known tax law rule provides for a reduced exclusion allowance when a quick sale of a home is necessitated by unforeseen circumstances. What's more, that reduced allowance may still shelter your entire profit from tax. For example, if a home is sold after just one year, a single taxpayer generally exclude up to $125,000 of profits from tax while a married couple can exclude up to $250,000.

What kind of unforeseen circumstances will entitle you to claim a reduced home sale exclusion? There are no hard and fast rules, but here are some examples of situations in which the IRS will automatically allow a reduced exclusion:

  • A job-related move
  • Relocation for health reasons
  • A move necessitated by a natural disaster
  • A job loss
  • Death in the family
  • Divorce or separation
  • A multiple birth
And there are, of course, other situations that would justify the use of a reduced exclusion.

If you are uncertain about the proper tax treatment of your home sale proceeds, I will be happy to advise you. Call (951) 775-7944 today for a consultation


Douglas A. Sevy