The IRS recently made important changes to the home sale rules
changes that are good news for many taxpayers.
The IRS recently made important changes to the home sale rules changes that are good news for many taxpayers.
As you’re probably aware, you can sell your home and exclude from taxation up to $250,000 of profit from the sale ($500,000 for joint filers). To qualify for this tax break, you must have owned and occupied the home as your principal residence for at least two of the five years prior to its sale. The law provides a partial exclusion if you have to move earlier due to “unforeseen circumstances.”
The IRS has defined those unforeseen circumstances that will allow partial tax exclusion on a home sale. Among the events that will qualify are the following:
– Your home is damaged by a natural or man-made disaster, or by act of war or terrorism.
– You lose your job or are transferred.
– You or a family member must move for health reasons.
– The sale is the result of divorce or legal separation.
– You can no longer afford the mortgage payments due to a change in your employment status.
– You have to sell your home following multiple births from the same pregnancy.
The rules also change how a sale is reported for taxpayers who claimed deductions for a home office. In the past, the sale had to be divided into a business portion and a personal portion. Gain from the business portion did not qualify for the exclusion. Now the homeowner will only pay tax on depreciation claimed after May 6, 1997 and will be allowed to exclude any additional gain up to the maximum exclusion allowed.
For details or a review of how these changes might apply to your home sale, give us a call.
Kerry Lorincz is a CPA and partner with the accounting and business consulting firm of Bianchi, Lorincz & Co. in downtown Hollister and in Morgan Hill.
