House sale Tax on income| deductions and options
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If you sell your primary home you can make a profit of 250,000 and there is no tax. (If you are married you can save up to 500,000 tax free)
Thing to note is - it should be your primary residence.
If it is secondary home, rented /investment property then you need to pay tax.
You also must live in that principal residence for two of the five years before you sell it
Tax is paid on capital gain.
Capital gain is home's selling price, minus deductible closing costs, selling costs, and your tax basis in the property. (Your basis is the original purchase price, plus purchase expenses, plus the cost of capital improvements, minus any depreciation and minus any casualty losses or insurance payments.)
Deductible closing costs include points or prepaid interest on your mortgage and your share of the prorated property taxes.
Examples of selling costs include real estate broker's commissions, title insurance, legal fees, advertising costs, administrative costs, escrow fees, and inspection fees.
So, for example, if you and bought a house for $300,000 and sold for $750,000, but you'd added $20,000 in home improvements, spent $5,000 fixing the place up for the sale, and paid the real estate brokers at least $25,000, the exclusion plus those costs. |