December 4, 2009

When You Sell your Home

The issue of Capital Gains Tax is not one that everyone is familiar with. And even those who think they know all there is to know about the tax may have another think coming.

Since the price of real estate usually goes up, most people who buy houses sell them for a profit. This profit is only taxable under certain circumstances. If you have made a profit of less than $250,000 as a single taxpayer or less than $500,000 as a married taxpayer who fills joint returns with your spouse, then your profit is not taxable. But there is a proviso to that benefit. You must have lived in that house as your primary residence for at least 2 years out of the last 5 years prior to selling the house.

But if those circumstances do not apply to you, you still might not be subject to Capital Gains Tax if you meet some other criteria. For example, if you were compelled to sell your house because of health reasons or a job change, you might be eligible for a partial exclusion that might allow you to exclude your entire profit from the sale. IRS Publication 523 is the section that covers all of the rules on sale of homes and the Capital Gains Tax in the IRS website, http://www.irs.gov.

Here are a couple of finer points that you may not know about Capital Gains Tax.

Some people have the mistaken notion that if you sell your house for a profit, you have to buy another one with the profit that costs as much as or more than the one you sold within a certain time frame. The purpose is to be eligible for the maximum tax gains. This is an erroneous thinking. The fact is, since the late 1990's Congress had already done away with that rule.

If, however, you sold your property at a loss, the reverse is not true. That means you are not entitled to deduct your loss in the calculation of the taxes you need to pay.

With millions of tax returns to monitor each year, the IRS does not audit every sale of homes or property. However, they do select some for audit. How they determine which sale is chosen for audit is confidential but there is a computerized method that determines which tax return is most likely to entail something questionable. Through this selection process, the IRS chooses about 1% of individual tax returns to audit each year. Most of these are done through the mail and taxpayers are usually asked to substantiate their tax figures with proper documentation.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

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