Residential profits fell slightly, but typical single-family home sellers recorded gross profit of $ 103,000 in the first quarter of 2022. According to ATTOMNational real estate database.
Many skirt taxes with profit below Capital gains thresholdExperts say, others, especially long-time homeowners, may have costly surprises.
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Profit from home sales is considered capital gains and will be taxed in 2022 at a federal tax rate of 0%, 15%, or 20%, depending on taxable income.
The IRS provides homeowners with depreciation, allowing a single filer to exclude profits of up to $ 250,000, and couples filing together can deduct up to $ 500,000.
However, these thresholds have not changed since 1997, and median home selling prices have more than doubled in the last two decades, affecting many long-term homeowners.
John Schultz, Certified Accountant and Partner of Mulder & Company, Genske, Ontario, California, said:
Exemptions may be important for some homeowners, but there are strict guidelines for qualification. The seller must own the home and use it as the primary residence for two of the five years prior to the sale.
“But it doesn’t have to be two years in a row,” said Mary John, a Piedmont, California-based certified accountant and agent who registered with the company under her name.
A person who owns two homes can divide the time between properties and qualify if the cumulative time of living in one place is equal to at least two years.
In addition, due to some exclusions, someone may divert the rental property to their primary residence for two years. In that case, she explained that the depreciation is based on the percentage of time spent there.
For example, if a filer owns a rental property for 10 years and has lived there for 2 years, he may be eligible for 20% of the $ 250,000 exemption or $ 50,000.
“But you need good records management,” Geong added.
Schultz explained that if a homeowner exceeds tax exemptions and unpaid taxes, it may reduce profits by adding certain home refurbishments to the original purchase price known as the basis.
For example, adding homes, patios, landscaping, swimming pools, new systems, etc. may be subject to improvement. According to the IRS..
However, it does not count the cost of ongoing repairs or maintenance that have no added value, such as painting or leak repair, and do not extend the life of the home.
Of course, homeowners need to show evidence of improvement, which can be difficult over the years. However, if someone loses their receipt, there may be other ways.
“The property tax history helps us go back and recalculate some of it,” Schultz pointed out, explaining how reasonable estimates are accepted.
Homeowners can also increase their foundation by adding certain closure costs such as ownership, statutory costs, and survey fees in addition to ownership insurance.
When selling a home with great profits, it could be the result of other taxes.
For example, if you increase your adjusted total income, Health insurance subsidyAnd may require someone to repay premium credits at the time of tax.
And increased income for retirees can lead to higher future payments Premiums for Medicare Apartment B and Part D..
“If you want to sell a significant asset, you need to talk to some kind of advisor,” Schultz said.
A financial adviser or tax expert can predict possible outcomes depending on someone’s perfect situation and help them choose the best move.