Tax Planning

As soon as you have sold your property, you will have to determine if you have to pay taxes on your sales income!

The government has set certain criteria and requirements that you have to meet so that you can leave out a sizeable amount of your profit from taxes if the home you sold is your primary residence. If you meet the eligibility requirements, chances are may not have to pay taxes on your sales proceeds.

The Taxpayers Relief Act of 1997 specifically states that you do not have to pay taxes up to $250,000 per person (or $500,000 for a married couple filing jointly) on the sale of a primary residence. For example, let us say that the capital gain from the sale of your house is $300,000. If you are single (or divorced), the first $250,000 of the amount is exempt from tax; however, you have to pay applicable taxes on the remaining $50,000.

On the other hand, a married couple who file their income tax jointly would be exempt from paying taxes since their total net is lower than the $500,000 limit for married couples. For this rule to be applicable to you, you must have lived in your primary residence (the house that you sold) for a period of at least two years. There is no limit to the number of times you may claim this exclusion when selling your home and the law does not require you to invest this money into buying another home. You can spend the money as you see fit!

This tax exclusion is conditional on whether or not the house you are selling qualifies as your principal residence. To qualify as your principal residence it must be the house where you spend the majority of your time.