Selling my home
I plan on selling my home next year. I'm unsure if I will purchase another or just rent after that. I have no idea if I'll need to report this on my tax return for the following year and if there is a tax penalty for not immediately purchasing another?
Answers
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A sale of a home is only taxed if the sale results in a gain, but there are scenarios where the IRS will exclude a gain of up to $250,000 ($500,00 if married filing jointly) from your taxable income. The eligibility for that exclusion can be found here on the IRS website:
The method of calculating if your home was sold at a gain is rather simple, and our software will do it for you and let you know automatically if you need to report the sale on your tax return or not (see the 'Income' » "Sale of Main Home" screen in our software). The exact calculation can be found on the same IRS webpage I linked above, in the "Figuring Gain or Loss" section.
There is not a tax penalty for immediately purchasing another home. However, the gain exclusion mentioned in the first paragraph can only be claimed once every two years, so keep that in mind if you're planning on purchasing and selling another home in a short amount of time.
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Paul, I'm new to FreeTaxUSA, can you tell me if this software will handle a "military orders / primary residency test" capital gains exemption for the sell of a house. I'm referring to the IRS provision for military members that extends the 5yr residency window to 15 yrs.
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Hi!
Yes, our software does handle that exemption. While going through the "Sale of Main Home" screens, you'll be asked about the Residency Requirement. You'll want to make sure to answer 'yes' to that question. You can also click the blue question mark next to the question and you can read more about the 'qualified extended duty' exemption.
Let us know if you have any follow up questions!
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Thank you for the quick response LaurenW!
