by Joe Romagnoli, Managing Partner

The weather has finally turned, and we’re seeing the typical seasonal surge of houses and properties for sale in the Northern Virginia and DC metro region. It’s this time of year that I, and the other partners here at CST, receive questions from our clients about the tax implications of selling a house, including

Will I Owe Taxes if I Sell my Home?

Maybe, but it depends on how much you gain and how you’re using the property.

If you’re single and are using the home as your primary residence, you can sell your home for a gain of up to $250,000 without owing any federal income tax.  Married couples who are filing jointly may be able to avoid paying taxes on up to $500,000 of gain. Additionally, your circumstances must meet the following requirements:

  • You (and your spouse, if you’re filing jointly) must have owned and used the property as your primary residence for at least two out of the five years prior to the sale.
  • The two years do not have to be consecutive

In general, any sale not meeting these two qualifications is considered a “premature sale,” which could result in hefty taxes. However, there are some exceptions for extenuating circumstances, like a change in employment or health issues. You should consult with a licensed CPA to discuss your specific circumstances.

If I Lose Money, Can I Deduct the Loss on the Sale of my Home?

Although the DC metro housing market has fared better than many other places, I still hear this question quite a bit. Unfortunately, no, there’s no tax deduction when the sale of your home results in a loss.

Many homeowners try to circumvent this problem by converting their home into a rental property, which leads to our next FAQ.

To Avoid a Loss, Should I Rent Out My Home Instead of Selling?

 It’s true that postponing a sale by converting your home into a rental property can be an attractive alternative to bringing money to the closing table. However, if you plan on becoming a landlord, it’s important to consider the following as your calculate your costs:

  • Cash Flow – While rent payments may cover your mortgage, other one-time or periodic expenses (maintenance, property taxes, insurance, HOA fees, and fees paid to the county) could affect your cash flow.
  • Investment of Time  – Maintaining a rental property and managing a relationship with tenants are time-consuming tasks. It’s important to keep in mind how much your personal time is worth, and also to consider whether your income property will cost you money indirectly if you’re forced to use vacation time or unpaid leave to handle unplanned maintenance.
  • Future Developments – The purpose of renting out your home is to prevent a loss, ideally waiting until the property increases in value and selling at a later date. However, if you foresee developments in the neighborhood that may result in further depreciation (for example, if the street is being converted into a major highway), you may be better off selling sooner rather than later.

For more information about the tax implications of buying and selling a house, contact the tax experts at CST Group.

 

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The information contained in the Knowledge Center is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. In no event will CST or its partners, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this Knowledge Center or for any consequential, special or similar damages, even if advised of the possibility of such damages.