ARE THERE TAX IMPLICATIONS TO SELLING WITHIN A YEAR OF BUYING A HOME?

June 9th, 2011 · No Comments

WHAT HAPPENS IF I SELL A HOME LESS THAN A YEAR AFTER I BOUGHT IT?

Q: We just bought a new home in a new subdivision and because of work issues, I need to sell the house. We’ve been in the house for only six months. Are there any tax implications to selling within a year or should you wait for two years cause that is what I hear from people? I was thinking maybe of renting it out and then selling it? Please advise?
–Andee, Warner Robins, GA

A: You didn’t indicate whether or not you took the 2009 -2010 First Time Homebuyer Tax Credit or not so I’ll address that later.

There are tax breaks that you will be missing out on with your short term ownership of your home. If you sell your primary residence, you can typically exclude a gain of as much as $500,000 if you’re married and filing a joint return with your spouse (or $250,000 if you’re single or married filing separately) and meet certain conditions. To be eligible for the full exclusion however, you must have owned the home — and lived in it as your principal residence — for at least two of the five years prior to the sale. When calculating your cost basis, don’t forget to include additions and other “improvements,” such as a new roof, deck or heating system.

You also didn’t indicate if you would be selling your home for a profit or a loss. If you are going to take a loss, the above obviously doesn’t matter.

If you took the 2009 – 2010 First Time Homebuyer Tax Credit you will likely be required to pay back at least some of it since one of the requirements of getting the credit is that you have to maintain the home as a primary residence for 36 months. So if you move out — even if you still own the property — you’ll have to repay the credit. Additionally, if you sell the home you have to pay back the credit. The good news is that you only have to repay up to the home’s gain, so you may not have to repay the entire credit. There are some exceptions to the requirement to repay the credit immediately on your next tax return:

• If the spouse of a deceased homeowner continues to live in the house. If the spouse sells the home, though, before the time is up he or she must repay half the credit.

• Spouse remains in home to finish the 36 months after a divorce.

• Military or other personnel required to move more than 50 miles away.

• If your home is involuntarily damaged and you are forced to move. However, you have to buy a new home within two years.

Other than the above exceptions, there is no way I know of to avoid repayment of the tax credit.

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Tags: Real Estate - Affecting You · Seller Tips

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