Over the past year, we have seen an increase of 10.4% on home prices nationally, according to Trulia's Price Monitor. We are seeing the beginnings of a robust recovery from the housing market crash of 2008- 2012. Thus, if you have owned your home for more than seven years, it is possible that you may be seeing a small-to-significant increase in value of your home from your original purchase price.
That is great news for those planning to sell their homes!
Now that tax time is upon us, it is the perfect time to get cozy with the current tax rules, if you think you will be coming out ahead with some capital gains profit on your property.
Here are three you need to know now, according to Trulia.com:
The Two-Year Primary Residence Tax Breaks
The issue of taxes boils down to this question: How long have you lived in your house? If you've lived in your home for two years or more, and it's been your primary residence, you can pocket up to $500,000 tax-free dollars, upon the sale of your home. This assumes you have a spouse or partner with whom you file joint taxes. If you are single, then you can exempt half of that – $250,000 – from taxes.
If You Sell In Less Than Two Years But...You Move More Than 50 Miles Away
If you have to move because of work relocation, health reasons or certain unforeseen circumstances, you can pro-rate the taxes on your profit. That means you can keep 25%, 50% or even 75% of your profit, tax-free, depending on how long you have owned your house—as long as it has been your primary residence.
One Very Important Number: 366 Days
If you sell on day 366, which is one year and one day after buying, you pay significantly less capital gains tax than if you sell on day 365. That's because at the one year and one day point, your profit is subject to long-term capital gains—not short-term. Uncle Sam rewards those who hold on to their investments for at least one year by lowering the percentage you have to pay in tax. If you sell within a year, you're taxed at a much higher rate.
If this at all sounds confusing, I highly recommend asking a tax advisor for help in understanding your tax obligations upon the sale of your home. But basically, unless you sell and have a capital gains equal to or greater than $250,000 (for a single person) or $500,000 (for a couple), then you won't have to pony up for a capital gains tax bill. You fall within the safety net the government gives us now to protect your increased house value.
This article originally appeared on Trulia.com
Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.