DISCLAIMER: The answers to questions in this segment are intended to be general in nature and do NOT constitute tax advice. Please contact a tax advisor to discuss your unique situation.
Q: Is it true that Obama is going to start taxing people when they sell their homes?
A: This comes from an e-mail that breathlessly states “did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That’s $3,800 on a $100,000 home.”
The answer is yes, you might pay income tax on sale of your home (not a “sales tax” as the e-mail puts it). But this will only apply to people with incomes above $200,000 ($250,000 if married filing jointly) and who sell their home for a gain of more than $250,000 ($500,000 for married filing jointly). Gain means sales price minus what you bought the home for. So if you bought your home for $100,000 and sell it for $200,000, you have a $100,000 gain.
For most taxpayers, this tax will only be an issue if their income is above $200,000 and they sell your home for a lot more than they bought it for.
This all assumes that you qualify for the $250,000/$500,000 exclusion, which leads us to our next question….
Q: How do I qualify for excluding the gain on the sale of my home?
A: The short answer is, if you have owned the home and used it as your primary residence for at least 2 out of the last 5 years, you can exclude up to $250,000 of the gain from capital gains tax ($500,000 if you are married and file a joint return).
Sometimes we throw around “tax geek” terms like “exclude the gain.” What this means is: you don’t include the gain in your income at all.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”