Newspaper article THE JOURNAL RECORD

Selling a Home Need Not Be a Taxpayer's Headache

Newspaper article THE JOURNAL RECORD

Selling a Home Need Not Be a Taxpayer's Headache

Article excerpt

Associated Press

WASHINGTON _ The most significant financial transaction in most people's lives _ and the most complex from a tax standpoint _ is the sale of their home.

The bad news is that the gain, like the gain on any other asset, is subject to a capital gains tax of up to 28 percent. However, the good news is that most home-sellers postpone paying the tax and will eventually escape it altogether, within limits.

The general rule is that you must postpone the tax if you purchase a new home that costs as much or more than the old home, after certain adjustments. This applies to your main home _ the one you live in most of the time _ not a vacation home.

In most cases, you must buy or build and occupy your new home within two years _ before or after _ of selling your old home. Military personnel and certain people living outside the United States may get a longer period.

If you plan to buy a new home but then change your mind and miss the two-year window, you'll have to file an amended return, 1040X, for the year of the sale and pay capital gains tax, plus interest.

If you or your spouse is 55 or older, you may be able escape paying taxes on up to $125,000 of the gain. One of you must have both owned and lived in the home for three of the previous five years.

This is a once-in-a-lifetime opportunity, so it takes some advance planning. Any part of the $125,000 that isn't used is gone forever. Also, if one spouse claimed the exclusion while single or during an earlier marriage, it can't be used.

Publication 523 has the details, but here are some guidelines for figuring the gain on a home sale and whether it's subject to tax.

Keep in mind, even though gains on home sales may be taxable, it's not a two-way street; losses aren't deductible.

If you sell your home, you need to fill out a Form 2119 and, if after working through it you discover you had a taxable gain, you'll need to attach a Schedule D to your return. …

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