It’s tax time. If you sold your house last year, you need to let your CPA or tax preparer know.
We heard from sellers who did not report the sale of their home on their tax return and two years later received a letter from the IRS demanding a tax payment along with interest and penalties for paying late. There are simple ways to prevent tax penalties years down the road, outlined below.
ONE – Be sure to get a copy of the 1099S form from the closing agent. This would be the title company or the attorney who closed with you and the buyer on the sale of your home. The sale should be reported on a 1099S, Proceeds from Real Estate Transactions, not the 1099Misc. The 1099S is for capital gains where the 1099Misc is income, and the documents have very different tax treatment when it comes to paying taxes.
TWO – Hang on to your Closing Statement after closing. Your tax preparer will need a copy of the Closing Statement which shows the sale price and all cost incurred to close on the sale of your home. You should receive this before you leave the closing table. If you can’t find your closing statement, ask your Realtor or the closing agent to send you a copy.
THREE – Good news!!! You may be exempt from capital gains tax on the sale of your home! The IRS states, “If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.” To qualify you must meet IRS criteria. Did you own and live in the home for at least two years out of the five years prior to selling?
FOUR – When you receive Form 1099S, Proceeds from Real Estate Transaction, you must report the sale of your home on your income tax return even if the gain from the sale is not taxable.
To confirm you are eligible to exclude the gain on the sale of your home, speak to a CPA.
For more information about taxes pertaining to the sale of your home, click this link, titled IRS Topic No. 701 Sale of Your Home. https://www.irs.gov/taxtopics/tc701
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