From the Desk of Mike Mollet

Are You Planning to Sell Your Home?
Know the tax consequences

If you are planning to sell your home, there are a couple of things you need to do in addition to packing and cleaning. For tax purposes you’ll need to determine whether or not the home you are selling is your main residence. Your main home is usually the one that you live in most of the time.

You should determine whether or not you have a gain on the sale of your home. To determine this, you will need to figure out your adjusted basis. Your adjusted basis is theoriginal purchase price of the residence, purchase expenses, improvements, additions, assessments and more. Consult with your tax professional for help in determining the items that may affect your home’s adjusted basis. Take the final selling price and reduce it by your adjusted basis to calculate your gain or loss from the sale.

If you have a gain from the sale of your main home, you may qualify for an exclusion of income for all or part of the gain. In general, if you have owned and used your home as your main residence for two out of the last five years, you are eligible to exclude $250,000 of gain from income ($500,000 for married taxpayers filing jointly). You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

If you received the first-time homebuyer credit and within 36 months of the date of purchase you no longer use the property as your principal residence, you may be required to repay the credit. Repayment of the credit is due with the income tax return for the year the home ceased to be your principal residence. The repayment amount is determined by the gain associated with the sale; if there is a loss the credit may not be required. Consult with your tax professional to determine if a repayment is required.

Example for married taxpayers filing jointly selling home:

  • Sales Price: $2,000,000
  • Adjusted Basis*: ($1,000,00)
  • Exclusion: ($500,000)
  • Taxable Gain: $500,000

    (Original cost $750,000 plus $250,000 of improvements)

Very truly yours,
Mike Mollet CPA