Selling a home? Don't forget about Uncle Sam!
There seems to be quite a large number of houses for sale on the North Fork (in fact there are four properties for sale in my 30-home community). If you're one of those people selling your house you're going to need to know how the sale will impact your tax liabilities. Some examples follow.
You can exclude up to $250,000 of the gain in the sale of your primary residence ($500,000 if you're married filing jointly). There are a couple of exceptions to this rule.
1. You must have used this home as your primary residence for two out of the five years prior to the date of the sale.
2. You are not eligible for the exclusion if you excluded a gain from the sale of another home within the last two years of selling your current home.
Reporting the Gains
If you have gains above the $250,000/$500,000 exclusion above, these gains are considered capital gains and are reported on Schedule D of your 1040.
No Deduction for Losses
In this economy it seems especially unfair, but unfortunately the IRS does not allow you to deduct a loss from the sale of your home.
These are the basic rules but there is certainly more to know. I strongly advise that you consult a tax professional prior to making a big move.