Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
Your home is one of your most interesting assets when it comes to income taxes. It’s easy to avoid paying taxes on most (or all) of the profits once you’ve sold it, and you can even turn home ownership into a tax-free source of income.
When you sell your home, you can exclude a big chunk of the gain—$250,000 per person or $500,000 per couple— as long as you meet certain guidelines. You must own the home and must have lived in it for at least two of the last five years.
Because the amount you can exclude is so high, none of the profit resulting from a home sale would be taxable in most areas of the country. Even after decades of appreciation, it’s unlikely you’ll make more than $250,000 when you sell your home.
But in big, crowded cities, space is precious. Properties cost more and appreciate faster, and the gains could possibly exceed the $250,000/$500,000 limits in five years or less.
Tips to reducing gains
To reduce the gains when you sell your home, keep careful records of the costs of all improvements made that will increase the value of the home over the long term. Improvements that fall under this category include landscaping (as opposed to routine gardening); adding on rooms; installing a pool; remodeling a kitchen, bathroom, or other room; making modifications to accommodate disabled residents; and installing a new roof (as opposed to sealing up leaks). The better your records are, the easier it will be for you to prove the increase to your original basis, or tax cost.
When you sell your home, some of your selling costs will reduce your profits. These include paying real estate commissions, paying the buyer’s points, and paying for a buyer’s home repair policy and title policy. Keep all the receipts for anything that doesn’t appear on the HUD-1 statement.
How else can you reduce the taxes on the profits?
Plan the sale to take place in a year where your taxable income puts you into a tax rate of 15 percent or less. That way, most or all of your gains will be tax-free.
You can also consider gifting or selling part of the home to other adult members of the family who live there. (There is nothing in the Internal Revenue Code section 121 to prevent partial owners from getting a full exclusion for their share of the home.) If each person is able to exclude $250,000 of the gain, you might be able to exclude all the gain on the sale. Discuss this with your tax professional first.
(Read more: Should I Buy a Home for Tax Purposes?)
If you choose to donate the home, you can do so in one of two ways. You can donate the house to a charity directly, or you can donate it through a remainder trust. That way, you never report the gain at all. You get a charitable deduction for part of the value of the home, but you get to live in it until you die.
Of course, you can simply live in the house until you die. Then your heirs will get the house with a tax cost based on the market value on the date of your death. They won’t have any capital gains taxes, and you would never have to pack up and move!
Eva Rosenberg, EA is the publisher of TaxMama.com ®, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.