Tax Strategies for Home Sellers: What You Need to Know

By Doug Cary

Doug Cary has been selling real estate in Davis County since 2005. He is a 2nd generation top producing Real Estate Agent.

Selling your home can lead to significant financial decisions, particularly when it comes to taxes. Here’s a straightforward guide on what to expect tax-wise when you decide to sell your home, whether it’s your primary residence or an investment property.

For those selling their primary residence, the IRS offers substantial tax exemptions that can greatly benefit sellers:

1. Married Couples Filing Jointly: You may be eligible for up to a $500,000 tax exemption.

2. Single Filers: Individuals can receive up to a $250,000 exemption.

However, to qualify for these exemptions, you must meet specific criteria set by the IRS:

1. Residency Requirement: You must have lived in the home as your primary residence for at least two of the last five years.

2. Previous Sale Limitation: You have not sold another primary residence within the last five years and claimed the exemption.

3. Usage Details: You have not taken extensive deductions for a home office or rental usage, which might affect your exemption.

Selling rental properties carries different tax implications, primarily centered around capital gains taxes and depreciation recapture. If you decide to sell a rental property:

1. Capital Gains and Depreciation: You’ll likely owe taxes on the profit from the sale and pay back depreciation benefits you’ve claimed.

2. 1031 Exchange: Alternatively, you can opt for a 1031 tax-deferred exchange. This strategy allows you to defer these taxes by rolling the proceeds into another investment property. This can be deferred until you sell the next property or even until your passing, under current laws.

While this overview provides a basic understanding, real estate and tax laws are complex and can vary significantly depending on individual circumstances. It’s crucial to consult with a tax advisor to fully understand how your specific situation will be impacted. As a licensed real estate professional, I can help guide you through the selling process and coordinate with your tax advisor to ensure all potential tax benefits are considered.

Whether you’re selling a primary residence or an investment property, understanding the tax implications can help you make more informed decisions and potentially save a significant amount in taxes. If you have any specific questions or need guidance on navigating the sale of your property, feel free to call, text, or send an email. You can also consult with your tax advisor for tailored advice.