FAQ: Do I owe taxes if I sell my home for a profit?
Home Sale and Taxes
Home sale and Taxes don’t go hand in hand for the vast majority of people.
If you are one of the fortunate few who have been able to realize a profit from the sale of your home the chances are very good that you owe nothing in capital gains taxes to the Federal or State government. A loss on the sale of your principle residence is not deductible…even if you reinvest in another primary residence! IRS Publication 523.
The applicable IRS rule is generous for those who have owned their primary residence for 5 years and have lived in it for 2 of the 5 years prior to the sale. The capital gains exemption is $500,000.00 for a married couple and $250,000.00 for a single person. Profit up to that amount is yours free and clear! What a bargain. How many tax breaks are that generous? The reason of course is that it has long been the government’s policy to encourage home ownership. That is also why mortgage interest is deductible and is likely to remain that way.
Owning a home has been a dream deferred for a lot of people in recent years. For some home ownership is a sign of finally growing up and becoming a real adult. Having their own home may represent stability for the children. You may enjoy puttering around and the rest of the responsibilities that go with it. For many others however the freedom of an apartment is just fine, at least for right now. For them home sale and taxes are irrelevant.
If you don’t meet the home sale and taxes requirement listed above there may still be hope. If you are moving because of a change in employment, health reasons or certain “unforeseen circumstances” such as death of your spouse you are eligible for tax relief.
There is even more fine print. If you are unsure, read IRS Publication 523 at http://www.IRS.gov or consult a tax professional.