The sale of a home is more than just a simple transaction. It is important that home owners are aware that these transactions can have tax implications. Three specific tax implications to watch for include:
- Gain or loss. A publication by Tax Buzz touches on this, noting many taxpayers assume the calculation for determining if a sale was a gain or loss is as simple as subtracting the actual, accepted offer from the asking price. In reality, the equation is much more complex. It is important to also take improvements, depreciation and casualty losses into account.
- Exclusions. The IRS generally views a property sale as a profit for the seller. The IRS allows for a tax exclusion of a certain amount. Basically, an individual can exclude up to $250,000 of the sale while a married couple can exclude $500,000.
- Use. There are a couple of tax considerations that apply to the use of the property. One is the 2 out of 5 rule. In order to get the exclusion noted above, this rule must be satisfied. Essentially, if the owner used the home for two of the five years it was owned the owner can qualify for the exclusion. Another potential issue involves depreciation related to business use. If the property was used for business and the owner claimed depreciation related to the business, the depreciation amount cannot be excluded.
These are just a few of the issues that can arise when accounting for tax considerations during a property sale. Additional issues abound and a failure to account for these issues could result in a tax issues. Options are available for those who find themselves in a dispute with the IRS. Contact a tax dispute attorney to discuss your options.