It’s almost that time of year… yes, tax season is almost upon us! If you’re selling a house in Miami, you’ll love our top tax tips!
Check Out Our House Selling Top Tips!
Not All Profits Are Taxable
Fortunately, you’ll be able to exclude a high portion of your profits aslong as certain conditions are met.
In most cases, you can exclude $250,000 from your tax return and up to $500,000 if you’re filing a joint return. But, just remember, if you sell at a loss, you won’t be able to take a deduction for that amount.
The deduction is only permitted when you sell your primary residence. Plus, it can only be used once every two years. In order to qualify for the deduction, you – the homeowner – will need to have lived in the residence for at least two years out of the past five.
If you don’t meet the requirements above, don’t panic. You might still be permitted to exclude a portion of your profits from your income tax.
There are various conditions that when met, allow you to receive a prorated, tax-free gain. For instance, if your reason for selling is due to a sudden change in your health, job or other unforeseen circumstance, you will be allowed to write-off a portion of the profit.
Reporting the Sale
If you receive a 1099-S form from the closing agent, you must report the sale.
This form provides the IRS with essential information regarding the proceeds from real estate transactions. To avoid this, you will need to ensure that you can exclude all profits.
In addition to this, you also need to let the agent know that the form will not need to be issued at the time of closing. Regardless of whether you can deduct all profits, if the form is issued, you will be required to file it with the IRS. This is wasted time and effort on our part if no money is owed.
Capital Gains Taxes
Are you selling an investment property or a house that you have owned briefly?
If so, you will likely be subeject to capital gains tax. But first, what is capital gains tax?
Capital gains tax is a levy based on the positive difference between the sale price of the asset and its original purchase price.
Capital Gains taxes are dependent on how much you earn. If your income is low, you won’t have to pay any capital gains taxes.
On the other hand, homeowners in higher tax brackets can end up paying upwards of 20%. Short-term assets are typically taxed the same as ordinary income.
First-Time Homebuyer Credit
Depending on the dates you bought and sold, you might have to pay back all or part of the credit you received.
In general, if you move home and relocate within 36 months of purchasing the initial property, the credit must be paid back upon selling the house.
Deduct Selling Costs
If you’re selling your Miami house, don’t forget that you can deduct any cost related to selling that’s considered a “reasonable expense”.
This includes closing costs, necessary improvements needed to sell the house, assessments, marketing costs, agent fees, and so on. Keep track of every cent you spend that goes towards selling your home. Come tax time, these costs can amount to major deductions!
No matter what time of the year you sell (or how), we always advise that you seek the counsel of professionals. Consult your agent, accountant, and attorney to make sure you have everything set up in your best interest.
At the end of the day, if you’re selling a property in Miami, don’t stress too much. Chances are Uncle Sam won’t be getting his hands on your profits.