TAX SEASON IS HERE! If you are selling a house in Colorado Springs, you will love these tax tips for selling your home! But please be aware that this article is for information purposes only.
For specific questions, contact a trusted tax professional, or the IRS!
Not All Of Your Profits Are Taxable
You may be able to exclude some of your profits if certain conditions are met. Typically, you will be able to exclude $250,000 from your tax return, and up to $500,000 if filing a joint return. (However, if you sell for a loss, you won’t be able to take a deduction for that amount.)
You can take this deduction ONLY if you are selling your primary residence, and you can only do this once every two years. To qualify for the deduction, you must have lived in the residence for at least two of the past five years.
It is important that whenever you move, your address is updated with the IRS.
If you do not meet the requirements above, you might still be able to exclude a portion of your profits from your income tax. There are many special conditions you can meet in order to receive a prorated, tax-free gain. If you need to sell because of a change in your health, a job change or other unforeseen circumstances, you will be able to write-off a portion of the profit.
Reporting the Sale
You must report the sale if you receive a 1099-S form from the closing agent. This is an IRS requirement as this form provides the IRS with information regarding the proceeds from real estate transactions. To avoid reporting, make sure that you are able to exclude all profits. Let the agent know at the time of closing that the form will not need to be issued. Even if you are able to deduct all profits, if the form is issued, you will still need to file it with the IRS… even if no money is owed.
Capital Gains Taxes
If you are selling an investment property or house you have only owned briefly, you will most likely have to pay capital gains tax. Capital Gains taxes are dependent on how much you make. If you have a lower income, you will pay no capital gains taxes. People in higher tax brackets can pay 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. Typically if you move within 36 months of purchasing the home, the credit must be paid back upon the sale of the home. Special rules apply and can be found in Publication 523 from the IRS.
Deduct Selling Costs
When selling your Colorado Springs house, you will be able to deduct any reasonable costs that are incurred when selling your home. This can include the closing costs, improvements made in order to sell the house, assessments, marketing costs, agent fees and so on. Keep track of every cent you spend in an effort to sell your home. Come tax time, this can amount to major deductions!
No matter what time of the year you sell, it is always important to seek the counsel of professionals. Consult your agent, accountant, and attorney to make sure you have set up the best terms for yourself.
Do you want to sell your house in Colorado Springs? We can help! Send us a message or give our office a call today! 719-354-2564