If you understand the tax rules, selling your home can turn out to be of great benefit.
One personal finance expert pointed out that you could lose thousands of dollars in taxes from sales if you don’t know about Internal Revenue Service (IRS) rules.
Jazmine Bautista, known as meet.jazzy On TikTok, explained to his nearly 383,000 followers, that the IRS allows you to exclude gains from home sales up to $250,000 from your taxable income.
If you file a joint tax return with your spouse, you can withdraw up to $500,000.
However, in order to qualify for a write-off, you must have lived in the home as your primary residence for at least two of the five subsequent years for the sale.
In practice, this means that if you bought your home less than two years ago, you should wait at least until the two-year mark to sell or else you’ll lose in the thousands. capital gains tax,
To make it clear, Jazmin said that if you make $94,000 on the sale of a home but fall short of the two-year requirement, you’ll have to pay.
Since that income is subject to long-term capital gains taxes, you’ll need to pay 15% in taxes, which means your actual income on the sale would be closer to $80,000.
Home Sales Tax Tips
Note that you can only apply for this exemption once every five years, so many homeowners or home flippers won’t be able to use the sale profit as a tax-free cash source.
Whether you’ve been in your home for two years or not, you can also save on capital gains taxes by matching large home improvement costs.
Let’s say you bought a house for $100,000 and sold it a year later for $200,000 – your profit and taxable income from the sale would be $100,000.
But if you spent $20,000 on kitchen renovations before the sale, you increased your home’s cost basis by the same amount and eventually reduced your taxable income from the sale to $80,000.
If you don’t qualify for the exemption and have to pay a 15% capital gains tax, keeping the receipts from renewal will reduce your tax burden by $15,000 to $12,000.
If you are planning to buy a home soon, check out these Four tips to know Before you go shopping.
and here are seven ways That you can get a discount or get a home repair done for free.
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