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9 Tax Myths about Selling Your Home

Keep in mind real estate taxes when selling your home

There are numerous reasons why you might to decide to sell your home. Moving away because of work, family reasons, looking for a change of scenery and surroundings, to name a few. Obviously a variety of factors can be at work if you are selling your home.

But one of the most important aspects to consider before you decide to sell is the real estate tax. One of the key rules you should know is that your gain from the home sale may not be taxable. Here are some clarifications about taxes and selling your home.

Estimating the value of your home
One of the most important things to keep in mind when selling your home are the real estate taxes that might apply upon the sale (Image: Freeimages.com)

Taxes and Home Sale in the US

These are the 9 tax myths related to selling your home that apply in the US. If you live elsewhere, different rules and regulations will apply. It's best to consult your local realtor about that.

1. The minimum age of claiming capital gains exclusion is 55

Previously, only taxpayers over 55 years of age were entitled to capital gains tax exclusion. The exclusion limit was $125,000 that could be used only once in a lifetime.

However, in the year 1997, the newly established Taxpayer Relief Act changed everything. The Act introduced a law that allows everyone to sell and buy as much property as possible, irrespective of one’s age.

2. Capital gains exclusion can be claimed only if one is living in the premises at the time of sale

  • It is generally believed that one has to live in the listed house in order to claim the right of tax exclusion.
  • The exclusion, which ranges from $250,000 to $500,000 of the total income for taxpayers who are already married, is granted to home owners who have resided on the premises on sale for three to five years prior to it.
  • Currently, the number of years one has lived in the premises prior to its sale does not matter.

3. Capital gains exclusion are claimed when one has bought a new home with proceeds of the previous one

  • Previously, one was entitled to exclusion under the condition that the proceeds received from the sale of one’s home are used to buy a new one within two years.
  • Currently however, proceeds obtained from one’s home sale can be used as the owner desires.

4. Capital gains exclusion are claimed for an unlimited number of houses

  • Tax exemptions are claimed for only one house at a time.
  • Capital gains exclusion is granted to the sale of one’s principal home only.
  • Exclusion is only claimed for the sale of one’s own home and cannot be applied to another property kept for the purpose of investment.

5. Capital loss can be claimed upon losing cash on the sale of one’s premises

  • Capital loss incurred from the sale of one’s house should not be claimed.
  • However, one should pay tax as well as report on capital returns from the sale of one’s premises.

6. One can claim capital gains exclusion by offsetting gains acquired from sale of a house with loss from sale of another

  • On the contrary, gains from the sale of one’s personal real estate do not have to be equivalent to the purchase of a new personal estate for them to offset. A gain is a gain, while a loss remains a loss

7. Expenses associated with moving are deductible always

  • Moving expenses when relocating for personal reasons cannot be claimed for tax reduction pruposes.
  • Work-related moving expenses are the only expenses that can be deducted under certain conditions.

8. Cost of various improvements and painting to prepare a house for sale can be deducted

  • Expenses associated with the preparation of selling one’s house are never deductible.
  • Instead, these costs should be take into account when setting up the house's selling price, if properties market conditions allow.

9. A 3.8% additional tax is imposed on the sale of every real estate

  • The 3.8% Medicare tax is imposed on investment income to taxpayers who earn a high income.
  • Therefore, only the gain from the sale of one’s house is included in the overall investment income.
  • Medicare tax does not apply to an income above the threshold as well as the gain from the sale of one’s house exceeds the exclusion amount.
House for sale
Before you put up your home for sale, get properly informed about capital gains tax laws as they apply in your state or country (Image: Freeimages.com)

These nine tax myths about taxes and selling your home should be used only for informative purposes and a starting point to obtain the right and current information.

If you are contemplating on putting a house for sale, you should properly inform yourself via official sites and consult with financial experts or your realtor. Laws change and different things might apply. So it's best to get up to date legal information and advice from your realtor and other real estate and property tax professionals.

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