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Pat Baker's Blog

By Pat Baker | Agent in Needham, MA

Selling Homes & Tax Rules

Well it is tax season and I thought it would be a good time to talk about selling houses.  The law changed about ten (10) years ago and you no longer roll the profit from previous homes.

A few rules to follow to exclude $250,000 of gain as a single person and $500,000 married filing jointly.

1.  During the (5) year period ending on the date of sale, you must have owned the home for a least 2 years.

2.  During that same five year period, you must have lived in the home as your main residence for at least two (2) years.

3.  If you must sell your home for any unforeseen reason, health issues or you are transferred out of area will still be entitled to a partial credit.

To determine the amount of your gain, start with the total purchase price of your home including closing costs and add any major improvements that you made to your home -- not cosmetic, like new paint and carpet but improvements, new concrete, upgrading the furnace or roof, room additions, etc. -- and subtract from the net selling price of the house.  The net selling price is the price less any closing costs you have to pay.

My information came from my CPA  SSC Services, Inc, 2190 NW 82nd St., Suite 4, Clive, IA 50325   http://www.sscservices.com

Pat Baker, Realtor(R), ABR (R), GREEN(R)
Coldwell Banker Residential Brokerage
1 Chapel Street, Needham, MA 02492
(C) 671-435-3471 (O) 781-444-7400 (V&F) 781-446-8697
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By Barbara Q.,  Sat Mar 7 2009, 06:05
Pat- Thanks for the tax info. Would like to add information regarding the tax benefits for Sellers AND Buyers associated with Discount points paid by the Seller at closing.

1.) Just wanted to reiterate the fact that "the net selling price is the price less any closing costs the Seller pays."
When a Seller pays closing costs, discount points, Seller-funded Buydown...these are considered Seller Expenses and subtracted from the net gain.

2.) There's a tax benefit for the Buyer as well! When a Seller pays discount points at closing to fund a Permanent or Temporary Interest Rate Buydown, although the Seller pays to Discount the Buyer's rate, the Buyer is able to use the cost of the interest rate buydown as a tax deduction in accordance with IRS Revenue Procedure 94-27. (Must be a primary residence, Maximum Loan Amount of $1 Million.)

A Creative Win! Win! Opportunity for Sellers & Buyers!

Barbara Q.
By Pat Baker,  Tue Mar 10 2009, 19:22
Thank you Barbara for this great information. We can all use any discount or added benefits these days and always really.
By Denise,  Thu Apr 2 2009, 20:27
i think a more appropriate question is what happens when you either short sale a home or go into foreclosure, how does that impact people, i.e. credit, credit scores, whether you are insolvent or not and how lenders will hit you with a 1099 for the shortfall and how that impacs your irs taxes for that year... just my thoughs and boy is it ugly..
By David & Samuel Rifkin,  Tue Apr 16 2013, 07:52
Thank you for this great information.

Samuel Rifkin
The Rifkin Team

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