A home will likely be the biggest purchase of your life.

If you’ve ever purchased a home, you know how stressful it can be. From packing to organizing, house hunting, budgeting and so much more; moving is an exhausting process. But, in the stress of it, all people tend to forget about taxes. Given how complicated the tax implications can be, we’ve compiled a list of five things to consider.

1. Your Profit Might be Taxable

Many sellers think they can avoid tax on the profit earned from a home sale. Although this is true in most instances, there are some exceptions. The first exception is if you’ve lived in a home for less than a total of two of the five years before the sale.

But, if you’ve lived in the home for a total of two years of the five years before the sale, you can avoid taxes on any profit earned up to $250,000. This amount also doubles if you are married and filed a joint tax return.

However, if your profit exceeds these amounts, any excess will have to be reported as a capital gain on Schedule D.

The second exception is if you’ve already claimed an exclusion of a home sale within the last two years. In this case, the IRS only allows you to exclude a home sale as being part of your taxable income every few years, so try to avoid a quick turnaround or you should expect to claim and pay taxes on the home sale.

2. You Can Delay Capital Gain Payments

If you have to pay capital gains on a sale of a home, you might be able to postpone the due date of it. That’s because U.S. taxpayers are eligible for a like-kind exchange. This occurs if a rental or business property is sold and replaced with a similarly valued property.

These taxes are further defined by state and local governments which is why it’s best to speak with a financial professional who is well-versed in the subject and who can give you the right answers about whether or not you qualify for this exemption.

3. Prepare for Withholding Tax

15% of the proceeds from a house sale will go to the IRS as withholding tax. These prices vary depending on the cost of a home. For example, a rate can be 0% if the sale price is under $300,000 or 10% if the price is between $300,000 and one million. But this is not a standard rate, if the tax payable would be less than 15% of the proceeds, then you may want to consider applying to the IRS for a reduction.

4. There Are Deductions

If you are purchasing a home for the first time, you should be pleased to know that you now qualify for a number of deductions. The first is for your home mortgage interest. This deduction is for the first $750,000 (or $375,000 as a single) of mortgage debt.

You can also deduct private mortgage insurance if this is something that you purchased along with any state and local tax decisions, necessary home improvements, capital gains, home equity loan interests, and more. Just be sure to check these with a tax professional before you claim them on your return


5. You Could Qualify for a Tax Credit

If you were issued a qualified mortgage credit certificate by a state or local government body (or any agency under a qualified mortgage credit certificate program) then you could be eligible for a credit. This credit is designed to help first-time homebuyers qualify for a home loan by reducing their tax liability.

Regardless of the deductions you qualify for, we always suggest having the help of a professional by your side.

Our team of experts can make sure your move is stress-free, and that you are fully informed of what you owe. That way, you can rest assured that you won’t get a huge bill come tax season. If you’d be interested in learning more, give us a call at 407-328-5001.

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