Selling a house has several inevitable and often complicated tax implications that all sellers should be aware of. If you’re a seller, you definitely don’t want to walk out to the mailbox and find a letter from the IRS. Nor do you want to discover after the sale that you’ve missed out on some significant tax breaks. Under the new tax laws, most profit for most people from the sale of a home is now tax free, but you can still take steps to maximize the tax benefits. So let’s see if we can help you understand how selling a house in 2019 will affect your taxes in Metro Detroit Michigan.
Good News About Selling a House in 2019
The good news now is that most sellers won’t even need to report the home sale transaction to the IRS. Whether or not you need to report it depends on how long you lived in and owned the home and the amount of profit. Here’s what the tax pros say:
- “If you owned and lived in the [home] two of the five years before the sale, then up to $250,000 of profit is tax-free.”
- “If you are married and file a joint return, the tax-free amount doubles to $500.”
- “You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven’t claimed the exclusion on another home in the last two years.”
- “If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain in Schedule D.”
While you can in fact exclude home sale profit (up to the prescribed limits) from your taxable income, you can’t, however, can’t take a deduction for a loss if you sold your home at a loss.
According to the tax experts, there are three major qualifying criteria you must meet when selling a house in 2019 in Metro Detroit Michigan in order to exclude sale profits from taxable income: ownership, use, and timing.
Concerning ownership, you must have owned the house for at least two years (technically, 24 full months or 730 days) during the five years preceding the date of sale. But that ownership doesn’t have to be continuous, nor do the two years of ownership have to be the two years immediately preceding the sale. If, for example, you owned the house for many years and then rented it out for the two years before the sale, you would still meet this criterion.
The use criterion wants to know if the house was your primary residence. You have to have lived in the home you’re selling as a primary residence for a minimum of two of the five years prior to the sale.
Timing is fairly simple. This requires that you haven’t “excluded the gain on the sale of another home within two years prior to this sale.”
Married people who want to use the $500,000 exclusion must:
- File a joint return
- Ensure at least one of them meets the ownership test
- Both have lived in the house for two of the five years prior to the sale
There are, however, some special conditions and circumstances regarding how selling a house in 2019 will affect your taxes in Metro Detroit Michigan. If you don’t meet all the criteria, you may still be able to claim a full or partial exclusion. This is the case when any of the following conditions obtain:
- You gain ownership of the house as a result of a divorce settlement. In this case, “you can count the time the place was owned by your former spouse as time you owned the home.”
- If you were absent from the home for short temporary periods and even rented it out during those periods, you can still count those times as time lived in the house.
- “If you or your spouse is granted use of a home as part of a divorce or separation agreement, the spouse who doesn’t live in the home can still count the days of use that the other spouse lived in that home.”
- “If either spouse dies and the surviving spouse has not remarried prior to the date the home is sold, the surviving spouse can count the period the deceased spouse owned and used the property toward the ownership-and-use test.”
Reduced Exclusion When Selling a House in 2019
Sometimes, you can qualify to have a part of the profit, when selling a house in 2019 in Metro Detroit Michigan? For many people, it will have little if any impact. But for others, it can have a pretty profound impact. Don’t miss out on substantial tax breaks by selling at the wrong time or in the wrong way.