Most people do not realize taxation on a personal residence is far different than taxation on income or investment property. The Taxpayer Relief Act of 1997 changed Internal Revenue Code treatment for the sale of a personal residence to allow a single taxpayer a $250,000 exclusion from capital gain. When you sell your home, you pay on your gain, not your equity. Gain and equity are two completely different things.
Gain is the difference between the amount realized from sale and the adjusted basis. Married couples receive a $500,000 exclusion. The taxpayer must have resided in the property, as a primary residence, two of the last five years. This exemption may be used once every two years. You can buy it, fix it up, sell it every two years, and as long as a gain is less than $250,000 or $500,000, you don't have any tax to pay. Age does not matter. If you do not meet the two year requirement, the 1997 Tax Payer Relief Act allows you to prorate if the sale is due to employment, health or other unforeseen circumstances. Gone are the days when the homeowner had to save every receipt for every upgrade, every repair, and every minor item bought at a hardware store. What a great time to be selling and enjoying the tax benefit! Experience A New Perspective In Apple Valley Real Estate
As with any tax or legal matter, you should consult with your tax or legal counsel before taking action.
