Taxpayers who have claimed the homebuyer tax credits over the last couple of years may have to repay some of the credit, starting with 2010 tax returns. The rules differ depending on which credit you claimed.
$7,500 Credit for Home Purchases Between April 8, 2008 and December 31, 2008
The original First-Time Homebuyer Credit was a credit of up to $7,500 for first-time homebuyers. Anyone who claimed this credit will have to repay the credit over 15 years, starting with their 2010 tax return.
Example
Someone claiming the full $7,500 credit will repay $500 of the credit each year for the next 15 years. The $500 is included as additional tax owed on the back side of Form 1040.
If the home gets sold at any time during the 15-year repayment period, the outstanding amount of the credit is due in full in the year of the sale.
$8,000 or $6,500 Credit for Purchases Between January 1, 2009, and April 30, 2010
Legislation in November of 2009 changed the original First-Time Homebuyer Credit and added a second credit for long-time homeowners who purchased a new home. The First-Time Homebuyer Credit was increased to up to $8,000 for homes purchased between January 1, 2009, and April 30, 2010. Most importantly, this credit no longer had to be re-paid -- as long as the homebuyer lives in the new home for at least 36 months.
The legislation added a $6,500 credit for long-time homeowners who purchased a new home between January 1, 2009, and April 30, 2010. This credit also does not have to be re-paid -- again, as long as the homebuyer lives in the home for at least 36 months.
If the homebuyer doesn't live in the home for at least 36 months, the entire amount of the credit is subject to being recaptured. So, someone who claimed the full $8,000 credit for a first-time home purchase could see their tax bill increase by $8,000 if they sell their home before the end of 36 months.
There are certain exceptions to the recapture rules in situations where the homebuyer dies, is in the military, or sells the home for a loss. It is best to seek the help of a tax professional if you think the recapture rules might apply to you.
Showing posts with label Home Sale. Show all posts
Showing posts with label Home Sale. Show all posts
Thursday, January 13, 2011
Tuesday, November 2, 2010
Is My Home Sale Taxable?
A visitor to this website asks the following question:
I bought my house almost 4 years ago for $50,000, put $10,000 in it for improvements. If I sell it for $72,000, and don't purchase another house, just rent, what are the pros and cons of that?
Answer:
There is good news here, tax-wise. A single person selling a home can exclude up to $250,000 of the gain on the sale (meaning, you don’t have to pay tax on the gain). A married couple filing a joint return can exclude up to $500,000 of the gain. It doesn’t matter what you do with the money from the sale; you just have to meet the following two tests:
1) In the last 5 years, you must have owned the house for at least 2 of those years.
AND
2) In the last 5 years, you must have lived in the house (meaning, used as your primary residence) for at least 2 of those years.
If a person does not meet the above two tests, they may still be eligible to exclude a pro-rated portion of the gain, provided they meet certain other requirements. Based on the information provided, it appears our questioner fully meets both of the above tests, so the entire exclusion would apply.
Their basis in the property is $50,000 purchase price + $12,000 improvements = $62,000.
In this case, if the house is sold for $72,000, they would have a $10,000 gain. Since this sale qualifies for the $250,000 exclusion, they would not be taxed on that gain. And because the entire gain is excludable, the sale would not need to be reported on their tax return.
The situation can become much more complex if you don’t qualify under the above two tests, or if you do qualify for the above two tests but also used the house as a rental property part of the time, or if you have used part of your home for business purposes and taken tax deductions, or any number of other “what if” scenarios.
Have a tax question on your mind? E-mail me at dinesentax@gmail.com. All people asking questions will remain anonymous.
DISCLAIMER: The above information does NOT constitute tax advice and is presented for general informational purposes only. Please consult a tax professional to discuss your unique situation.
I bought my house almost 4 years ago for $50,000, put $10,000 in it for improvements. If I sell it for $72,000, and don't purchase another house, just rent, what are the pros and cons of that?
Answer:
There is good news here, tax-wise. A single person selling a home can exclude up to $250,000 of the gain on the sale (meaning, you don’t have to pay tax on the gain). A married couple filing a joint return can exclude up to $500,000 of the gain. It doesn’t matter what you do with the money from the sale; you just have to meet the following two tests:
1) In the last 5 years, you must have owned the house for at least 2 of those years.
AND
2) In the last 5 years, you must have lived in the house (meaning, used as your primary residence) for at least 2 of those years.
If a person does not meet the above two tests, they may still be eligible to exclude a pro-rated portion of the gain, provided they meet certain other requirements. Based on the information provided, it appears our questioner fully meets both of the above tests, so the entire exclusion would apply.
Their basis in the property is $50,000 purchase price + $12,000 improvements = $62,000.
In this case, if the house is sold for $72,000, they would have a $10,000 gain. Since this sale qualifies for the $250,000 exclusion, they would not be taxed on that gain. And because the entire gain is excludable, the sale would not need to be reported on their tax return.
The situation can become much more complex if you don’t qualify under the above two tests, or if you do qualify for the above two tests but also used the house as a rental property part of the time, or if you have used part of your home for business purposes and taken tax deductions, or any number of other “what if” scenarios.
Have a tax question on your mind? E-mail me at dinesentax@gmail.com. All people asking questions will remain anonymous.
DISCLAIMER: The above information does NOT constitute tax advice and is presented for general informational purposes only. Please consult a tax professional to discuss your unique situation.
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