{"id":6857,"date":"2018-12-27T08:01:41","date_gmt":"2018-12-27T16:01:41","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=6857"},"modified":"2021-03-31T08:05:09","modified_gmt":"2021-03-31T15:05:09","slug":"home-sale-tax-questions","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/home-sale-tax-questions\/","title":{"rendered":"Your 14 Most Pressing Home Sale Tax Questions Explained in Simple Terms"},"content":{"rendered":"

DISCLAIMER:<\/strong>\u00a0As a friendly reminder,\u00a0this blog post is meant to be used for educational purposes only, not legal or tax advice. If you need help determining the taxes on your home sale, please consult a skilled tax professional.<\/em><\/p>\n

Taxes make you feel like life is nothing but a miserable existence. But when it comes to your home sale, there\u2019s a silver lining: Thanks to the Taxpayer Relief Act of 1997<\/a>, you likely don\u2019t have to fork over a single penny of your home sale profits to the federal government. And this wasn\u2019t always the case.<\/p>\n

It used to be that you had to pay capital gains when you sold your house unless you resorted to one of two loopholes\u2014the \u201crollover rule,\u201d which required purchasing another house within two years, or claiming a one-time $125,000 exclusion (only applicable to sellers over the age of 55).<\/p>\n

Legislators said \u201cpish-posh\u201d to those regulations over 20 years ago, and homeowners ever since have reaped the benefits. Nevertheless, selling your home remains a complex and expensive endeavor, and taxes are just the tip of the iceberg on your long to-do list.<\/p>\n

We pored over all the relevant IRS home sale tax explainers and consulted seasoned pros Brett Young<\/a>, a top-selling real estate agent in Indianapolis, and Monika Heaton<\/a>, founder and CEO of tax planning and preparation firm Decision Financial, to answer the most common home sale tax questions one by one (and in plain English!)<\/p>\n

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Source: (Pexels)<\/figcaption><\/figure>\n

1. Do you have to pay capital gains taxes on your home sale?<\/h2>\n

It depends, but most home sales are 100% tax free<\/a>. Let\u2019s explain.<\/p>\n

The capital gains tax<\/a> is the tax imposed on the sale of a capital investment, such as real estate. Generally speaking, the government wants a piece of any \u201ccapital gains\u201d<\/a> (aka profit) you make from selling off assets like stocks, bonds or property<\/b>.<\/p>\n

However, Uncle Sam views homeownership as a wealth-builder and stabilizer for the U.S. economy and therefore incentivizes Americans to own real estate with generous tax breaks. Think about it\u2014if you sold your home only to hand over half the proceeds to the government, would you even invest in a house in the first place?<\/p>\n

Enter the capital gains tax exclusion: a rule that allows single tax filers to exclude up to $250,000 of capital gains on their home sale and married couples to exclude up to $500,000.<\/p>\n

2. Do you qualify for the capital gains tax exclusion?<\/h2>\n

To qualify for the tax exclusion, you need to meet three criteria:<\/p>\n