When you sell your home, you can keep up to $250,000 in profit tax free ($500,000 for couples), with a few major caveats. To qualify for the full exclusion, the main requirements are that the property must be your primary residence and you must have owned the home for more than two years.
But, even if you don’t meet those requirements, you may qualify for a reduced exclusion. That means some of the profit from the property sale could be excluded from your taxes. So you won’t get to exclude up to the $500,000 maximum (for couples), but you also won’t have to pay tax on 100% of the profit earned on your home’s sale.
Most taxpayers are aware of the requirements to secure the maximum exclusion, but many have never heard of the reduced exclusion. That’s why it’s so important to educate yourself on this nuance of tax law. The rules for reduced exclusions are a little less clear-cut than for the maximum exclusion: Reduced exclusions are available on a case-by-case basis for property owners who sell their homes due to a change in employment, health problems, or other “qualifying” unanticipated circumstances.
To secure your reduced exclusion, you’ll need to file a 1040 Schedule D and Form 8949. If that sounds too complicated, or if you’re not certain whether your home sale qualifies for a reduced exclusion, give us a call. The Price Advantage Accounting team has more than 40 years of experience providing a huge range of tax services. We can help you file an accurate tax return to minimize your tax and avoid tax problems down the road. Learn more when you contact us today!