by B. Leslie Baird

Created on: August 14, 2010

Federal taxes can be required when you sell a home. The tax will vary depending on whether the home is your primary residence or a vacation home or rental property. Full tax rules can be complicated and should be thoroughly understood when completing tax forms.

Amount of sale:

Taxes will be required if the profit from the sale of the home is more than $250,000 for a single homeowner and $500,000 for a married couple. If a spouse dies within two years before the sale of the home and the seller did not remarry they are considered married for tax purposes.

Taxes will be based on the amount realized from the sale and the adjusted basis. The amount realized is the selling price minus qualified expenses occurred during the sale. The basis is the original home price plus or minus improvements, additions, special assessments or energy credits, adoptions credits and easement payments received. This is only a partial list of all the factors that can be involved in determining basis.

Primary residence:

For a home to qualify as a primary residence the seller must live in the home for two out of the five years immediately before the sale of the home. If portions of the property were used for business purposes additional tax rules apply.

Reduced exclusions:

For those that do not meet the requirements for regular exclusion reduced exclusions may apply. If the home was sold due to a change of employment, unforeseen circumstances or a health condition a tax reduction is available. For employment considerations the new employment must be 50 miles farther from the home being sold the former employment was. If unemployed the employment must be 50 miles or more from the home being sold.

Health condition rules apply when the reason for sale of the home is to obtain, assist or provide medical care for a qualifying individual. Personal care for illness or injury of a qualified individual is also allowed.

Unforeseen circumstances are considered to be when a home is condemned or destroyed, the sale of the home is due to divorce or death or the sale of the home is due to a change in employment status that makes the home no longer financially sustainable.

First time buyer credit:

If the seller claimed a first time home buyer credit for the home purchase in 2008 and then sold or stopped living in the home in 2009 they may have to repay the credit. Members of the armed services on qualified extended duty are excluded from this requirement. Certain other situations may also qualify for this exemption.

Tax laws change frequently; always check the most up to date information when preparing a tax return. The information in this article is based on 2009 tax year rules by the IRS.

References:

http://www.irs.gov/publications/p523/ar02.html#en_US _publink1000200792

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