By admin1
You inherited your home
The cost basis on inherited assets, like property, is the fair market value of your home on the date of the previous owner’s death. But what exactly is fair market value? It’s the price an asset would command in the marketplace.
If you don’t sell the house within a year of inheritance, it’s recommended that you hire a professional certified appraiser to determine the fair market value asking price.
You’re converting a second home to a primary home
If you happen to own a second home, whether it’s a slopeside chalet in Colorado, a beach cottage in Cape Cod, or some other dreamy escape, it’s tricky to take advantage of the tax benefit that allows married homeowners to claim up to $500,000 of tax-free gains when they sell their primary house.
To claim the benefit, you need to live in the second home for at least two years.
You qualify for a reduced exclusion
If you don’t qualify for the capital gains tax exclusion, you may be eligible for a reduced exclusion. This applies if the living conditions of a qualified individual change. So, who’s considered a “qualified individual” in this scenario?
- You
- Your spouse
- A co-owner
- A resident
In most cases, you can qualify for and claim a reduced exclusion if you sold your house for any of the following reasons:
- You moved for a new job AND a) that new job is at least 50 miles farther from your new house than your previous job (or, if you didn’t have a previous employer, at least 50 miles farther from your previous home) and b) you changed your employment situation while you still owned and lived in the house.
- Your qualified family member — living in your house — has a disease, illness, or injury, and you have to sell your property to a) get them a diagnosis, a cure, mitigation, or treatment or b) because a doctor recommends a change of residence for medical or personal care reasons.
- You experience unforeseen personal, familial, or environmental circumstances such as:
- Death
- Divorce
- Eligibility for unemployment compensation
- Inability to pay for basic living expenses
- Employment changes
- Involuntary conversions, such as your house being destroyed, condemned, or under threat of condemnation
- Multiple births from the same pregnancy (twins or triplets)
- Natural or man-made disasters
4. Things you can do to stay in the IRS’s good graces
Initiate a tax conversation with a professional
If your real estate agent hasn’t brought up real estate taxes and what you might owe after closing on the sale of your house, it’s in your best interest to take charge and initiate that conversation with them. Ideally, you should speak with a CPA as well, so you don’t experience any surprises come tax season.
“I’ve heard stories from agents who didn’t have a conversation with the seller about their tax implications, and they missed a deadline by a week or two weeks or a month.
“Stories about how the seller didn’t have to specifically sell, and they could have waited another 30 days, but now there’s some sort of tax implication. Agents who didn’t advise the client, and who, unfortunately, sold and closed the house before a deadline,” Tann explains.
See a tax advisor
Tax rules and regulations are constantly changing from year to year, decade to decade, and even administration to administration. Tann advocates seeing a tax advisor when selling your home.
“There are so many factors that come into play that the agent should have some sort of basic knowledge [of real estate taxes]. But again, sellers want to go to a tax advisor to get proper advice on what the best course of action for them is.”
Tann explains the importance and sensitivity of the matter with the following example:
If a homeowner occupies a house, and they’re at the one-year and 10-month mark (and, thus, two months away from the two-year threshold described earlier), Tann says they want to do one of two things: either hold off on the two months or, if they put the house on the market, work the contract so that the closing takes place after the two-year deadline.
