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If you have a gain from the sale of your main home, you may be able to exclude all or part of that gain from your income.
Here are 10 tips to keep in mind when selling your home.
1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the full exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale of your home on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude. Most tax software can also help with
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523, Selling Your Home, for details.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.
For more information about selling your home, see IRS Publication 523,Selling Your Home.
Publication 523, Selling Your Home (PDF)
Form 8822, Change of Address (PDF)
Tax Topic 701 – Sale of Your Home
Real Estate Tax Tips – Sale of Residence
By Stacie Clifford Kitts
The House has voted to extend the Homebuyers credit as part of H.R.3548 Worker, Homeownership, and Business Assistance Act of 2009
What’s new for the credit? Well if President Obama signs the bill here is a quick outline of what we get: (The entire section of the bill that relates to the Homebuyers credit is listed below my outline)
- The applicable period is extended until April 30, 2010. (see binding contract rules below)
- If you are on qualified official extended duty outside the US the applicable period is extended until April 30, 2011. (Members of the military serving outside the US for at least 90 days)(see also binding contract rules below)
- There is a new election to treat a purchase after December 31, 2008 as if it happened at the end of the preceding year. (see details below)
- There is an enhanced definition of a first time homebuyer (see special rule for Long-Time residents below – if you owned your former home for at least 5 consecutive of the 8 prior years you are eligible for a credit up to $6,500)
- There has been a modification of dollar and income limits. No credit is allowed if the house cost is more than $800,000. The income phase out is $125,000 for single tax payers and $225,000 for married taxpayers. (See below for more dollar limits)
- A taxpayer must be at least 18 years old to claim the credit
- A settlement statement must be attached to the tax return when claiming the credit
- Restriction on married individuals acquiring a residence from a family member or spouse from claiming the credit
- If a credit is incorrectly claimed on a tax return it will be treated as a mathematical or clerical error. I guess this means they aren’t going to put you in jail if you screw it up.
H.R.3548 click here to read the entire bill
SEC. 11. EXTENSION AND MODIFICATION OF FIRST-TIME HOMEBUYER TAX CREDIT.
(a) Extension of Application Period-
(1) IN GENERAL- Subsection (h) of section 36 of the Internal Revenue Code of 1986 is amended–
(A) by striking `December 1, 2009′ and inserting `May 1, 2010′,
(B) by striking `Section- This section’ and inserting `Section-
`(1) IN GENERAL- This section’, and
(C) by adding at the end the following new paragraph:
`(2) EXCEPTION IN CASE OF BINDING CONTRACT- In the case of any taxpayer who enters into a written binding contract before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010, paragraph (1) shall be applied by substituting `July 1, 2010′ for `May 1, 2010′.’.
(2) WAIVER OF RECAPTURE-
(A) IN GENERAL- Subparagraph (D) of section 36(f)(4) of such Code is amended by striking `, and before December 1, 2009′.
(B) CONFORMING AMENDMENT- The heading of such subparagraph (D) is amended by inserting `AND 2010′ after `2009′.
(3) ELECTION TO TREAT PURCHASE IN PRIOR YEAR- Subsection (g) of section 36 of such Code is amended to read as follows:
`(g) Election To Treat Purchase in Prior Year- In the case of a purchase of a principal residence after December 31, 2008, a taxpayer may elect to treat such purchase as made on December 31 of the calendar year preceding such purchase for purposes of this section (other than subsections (c), (f)(4)(D), and (h)).’.
(b) Special Rule for Long-time Residents of Same Principal Residence- Subsection (c) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
`(6) EXCEPTION FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE- In the case of an individual (and, if married, such individual’s spouse) who has owned and used the same residence as such individual’s principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence.’.
(c) Modification of Dollar and Income Limitations-
(1) DOLLAR LIMITATION- Subsection (b)(1) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
`(D) SPECIAL RULE FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE- In the case of a taxpayer to whom a credit under subsection (a) is allowed by reason of subsection (c)(6), subparagraphs (A), (B), and (C) shall be applied by substituting `$6,500′ for `$8,000′ and `$3,250′ for `$4,000′.’.
(2) INCOME LIMITATION- Subsection (b)(2)(A)(i)(II) of section 36 of such Code is amended by striking `$75,000 ($150,000′ and inserting `$125,000 ($225,000′.
(d) Limitation on Purchase Price of Residence- Subsection (b) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
`(3) LIMITATION BASED ON PURCHASE PRICE- No credit shall be allowed under subsection (a) for the purchase of any residence if the purchase price of such residence exceeds $800,000.’.
(e) Waiver of Recapture of First-time Homebuyer Credit for Individuals on Qualified Official Extended Duty- Paragraph (4) of section 36(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
`(E) SPECIAL RULE FOR MEMBERS OF THE ARMED FORCES, ETC-
`(i) IN GENERAL- In the case of the disposition of a principal residence by an individual (or a cessation referred to in paragraph (2)) after December 31, 2008, in connection with Government orders received by such individual, or such individual’s spouse, for qualified official extended duty service–
`(I) paragraph (2) and subsection (d)(2) shall not apply to such disposition (or cessation), and
`(II) if such residence was acquired before January 1, 2009, paragraph (1) shall not apply to the taxable year in which such disposition (or cessation) occurs or any subsequent taxable year.
`(ii) QUALIFIED OFFICIAL EXTENDED DUTY SERVICE- For purposes of this section, the term `qualified official extended duty service’ means service on qualified official extended duty as–
`(I) a member of the uniformed services,
`(II) a member of the Foreign Service of the United States, or
`(III) an employee of the intelligence community.
`(iii) DEFINITIONS- Any term used in this subparagraph which is also used in paragraph (9) of section 121(d) shall have the same meaning as when used in such paragraph.’.
(f) Extension of First-time Homebuyer Credit for Individuals on Qualified Official Extended Duty Outside the United States-
(1) IN GENERAL- Subsection (h) of section 36 of the Internal Revenue Code of 1986, as amended by subsection (a), is amended by adding at the end the following:
`(3) SPECIAL RULE FOR INDIVIDUALS ON QUALIFIED OFFICIAL EXTENDED DUTY OUTSIDE THE UNITED STATES- In the case of any individual who serves on qualified official extended duty service (as defined in section 121(d)(9)(C)(i)) outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010, and, if married, such individual’s spouse–
`(A) paragraphs (1) and (2) shall each be applied by substituting `May 1, 2011′ for `May 1, 2010′, and
`(B) paragraph (2) shall be applied by substituting `July 1, 2011′ for `July 1, 2010′.’.
(g) Dependents Ineligible for Credit- Subsection (d) of section 36 of the Internal Revenue Code of 1986 is amended by striking `or’ at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting `, or’, and by adding at the end the following new paragraph:
`(3) a deduction under section 151 with respect to such taxpayer is allowable to another taxpayer for such taxable year.’.
(h) IRS Mathematical Error Authority- Paragraph (2) of section 6213(g) of the Internal Revenue Code of 1986 is amended–
(1) by striking `and’ at the end of subparagraph (M),
(2) by striking the period at the end of subparagraph (N) and inserting `, and’, and
(3) by inserting after subparagraph (N) the following new subparagraph:
`(O) an omission of any increase required under section 36(f) with respect to the recapture of a credit allowed under section 36.’.
(i) Coordination With First-time Homebuyer Credit for District of Columbia- Paragraph (4) of section 1400C(e) of the Internal Revenue Code of 1986 is amended by striking `and before December 1, 2009,’.
(j) Effective Dates-
(1) IN GENERAL- The amendments made by subsections (b), (c), (d), and (g) shall apply to residences purchased after the date of the enactment of this Act.
(2) EXTENSIONS- The amendments made by subsections (a), (f), and (i) shall apply to residences purchased after November 30, 2009.
(3) WAIVER OF RECAPTURE- The amendment made by subsection (e) shall apply to dispositions and cessations after December 31, 2008.
(4) MATHEMATICAL ERROR AUTHORITY- The amendments made by subsection (h) shall apply to returns for taxable years ending on or after April 9, 2008.
SEC. 12. PROVISIONS TO ENHANCE THE ADMINISTRATION OF THE FIRST-TIME HOMEBUYER TAX CREDIT.
(a) Age Limitation-
(1) IN GENERAL- Subsection (b) of section 36 of the Internal Revenue Code of 1986, as amended by this Act, is amended by adding at the end the following new paragraph:
`(4) AGE LIMITATION- No credit shall be allowed under subsection (a) with respect to the purchase of any residence unless the taxpayer has attained age 18 as of the date of such purchase. In the case of any taxpayer who is married (within the meaning of section 7703), the taxpayer shall be treated as meeting the age requirement of the preceding sentence if the taxpayer or the taxpayer’s spouse meets such age requirement.’.
(2) CONFORMING AMENDMENT- Subsection (g) of section 36 of such Code, as amended by this Act, is amended by inserting `(b)(4),’ before `(c)’.
(b) Documentation Requirement- Subsection (d) of section 36 of the Internal Revenue Code of 1986, as amended by this Act, is amended by striking `or’ at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting `, or’, and by adding at the end the following new paragraph:
`(4) the taxpayer fails to attach to the return of tax for such taxable year a properly executed copy of the settlement statement used to complete such purchase.’.
(c) Restriction on Married Individual Acquiring Residence From Family of Spouse- Clause (i) of section 36(c)(3)(A) of the Internal Revenue Code of 1986 is amended by inserting `(or, if married, such individual’s spouse)’ after `person acquiring such property’.
(d) Certain Errors With Respect to the First-time Homebuyer Tax Credit Treated as Mathematical or Clerical Errors- Paragraph (2) of section 6213(g) the Internal Revenue Code of 1986, as amended by this Act, is amended by striking `and’ at the end of subparagraph (N), by striking the period at the end of subparagraph (O) and inserting `, and’, and by inserting after subparagraph (O) the following new subparagraph:
`(P) an entry on a return claiming the credit under section 36 if–
`(i) the Secretary obtains information from the person issuing the TIN of the taxpayer that indicates that the taxpayer does not meet the age requirement of section 36(b)(4),
`(ii) information provided to the Secretary by the taxpayer on an income tax return for at least one of the 2 preceding taxable years is inconsistent with eligibility for such credit, or
`(iii) the taxpayer fails to attach to the return the form described in section 36(d)(4).’.
(e) Effective Date-
(1) IN GENERAL- Except as otherwise provided in this subsection, the amendments made by this section shall apply to purchases after the date of the enactment of this Act.
(2) DOCUMENTATION REQUIREMENT- The amendments made by subsection (b) shall apply to returns for taxable years ending after the date of the enactment of this Act.
(3) TREATMENT AS MATHEMATICAL AND CLERICAL ERRORS- The amendments made by subsection (d) shall apply to returns for taxable years ending on or after April 9, 2008.
The IRS Estate and Gift Tax Program recently started working with state and county authorities in several states to determine if real estate transfers reported to them are unreported gifts.
Although a tax may not be due, a gift tax return may be required for real estate transfers above the annual exclusion amount.
The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, and $13,000 on or after January 1, 2009, the annual exclusion applies to each gift.
[Stacie says: Note: Each parent may gift up to the annual exclusion amount to their child. So in 2009, a child may receive a total of $26,000.]
Penalties will be considered on all delinquent taxable gift returns filed.
See information about:
Recently the IRS issued Headliner 271
Tips on Rental Real Estate Income, Deductions and Recordkeeping. This headliner is full of good info, but I thought it needed some expansion for Real Estate Professionals. So with that in mind, I have included some facts from IRS Publication 925 Passive Activity and At Risk Rules:
“Generally, rental activities are passive activities even if you materially participated in them.
However, if you qualified as a real estate professional, rental real estate activities in which you materially participated are not passive activities. For this purpose, each interest you have in a rental real estate activity is a separate activity, unless you choose to treat all interests in rental real estate activities as one activity. See the instructions for Schedule E (Form 1040) for information about making this choice.
[Stacie says: Be careful here, I have seen preparers treat rental real-estate owned by a real-estate professional as non-passive even when all interest are not treated as one activity. Although it is possible to meet the material participation requirement, its unlikely when there are many rental properties.]
“If you qualified as a real estate professional for 2008, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). If you also have an unallowed loss from these activities from an earlier year when you did not qualify, see Treatment of former passive activities under Passive Activities, earlier.
WASHINGTON — With 2009 now half over, the Internal Revenue Service reminds taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recovery and Reinvestment Act (ARRA).
The recovery law provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient and parents and students paying for college. But all of these incentives have expiration dates so taxpayers should take advantage of them while they can.
First-Time Homebuyer Credit
The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009.
Taxpayers who didn’t own a principal residence during the past three years and purchase a home this year before Dec. 1 can receive a credit of up to $8,000 on either an original or amended 2008 tax return, or a 2009 return. But the purchase must close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until after the closing date. This credit phases out at higher income levels, and different rules apply to home purchases made in 2008.
New Vehicle Purchase Incentive
ARRA also provides a tax break to taxpayers who make qualified new vehicle purchases after Feb. 16, 2009, and before Jan. 1, 2010.
Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. There is no limit on the number of vehicles that may be purchased, and you may claim the deduction for taxes paid on multiple purchases. But the deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle and phases out for taxpayers at higher income levels. This deduction is available regardless of whether a taxpayer itemizes deductions on Schedule A.
Phase out: The deduction is phased out for joint filers with modified adjusted gross income between $250,000 and $260,000 and other taxpayers with modified AGI between $125,000 and $135,000. If you are married and make between $250,000 and $260,000 you will get a portion of the credit. But if you make over $260,000 you will not get any credit. If you are not married and you make between $125,000 and $135,000 you will get a portion of the credit. If you make over 135,000 you will not get a credit.
Energy-Efficient Home Improvements
The Recovery Act also encourages homeowners to make their homes more energy efficient. The credit for nonbusiness energy property is increased for homeowners who make qualified energy-efficient improvements to existing homes. The law increases the rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010.
Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
Tax Credit for First Four Years of College
The American opportunity credit is designed to help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
Certain Computer Technology Purchases Allowed for 529 Plans
ARRA adds computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a qualified tuition program (QTP), commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the QTP while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature.
Making Work Pay and Withholding
The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld, including multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners. Failure to adjust your withholding could result in potentially smaller refunds or in limited instances may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675, and 79 percent of all returns received a refund.
For more on the Recovery provisions that may apply to individual taxpayers see the ARRA page on IRS.gov.
If you own a part interest in rental property, you must report your part of the rental income from the property.
Good records will help you monitor the progress of your rental property, prepare your financial statements, identify the source of receipts, keep track of deductible expenses, prepare your tax returns and support items reported on tax returns.