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Some helpful insight - A monthly newsletter form Robert Reinert Consulting

Sale of Personal Residence

One of the best tax savings strategies is the exclusion of the gain on your personal residence:What is the exclusion?1.The exclusion is $250,000 of gain on the sale per taxpayer and therefore $500,000 of gain if filing a joint return. It can be used every two years.
And what are the rules?
1.You must know how to compute the gain: Selling price less the basis of the home.
2.You must live in and own the home for at least two years (730 days). There is a prorating of the exclusion allowed for less than 730 days under special circumstances.
3.Losses cannot be deducted.
4.At least one spouse must meet the two year ownership requirement and both must meet the two year use of the residence requirement for both to receive the exclusion.
We specialize in small businesses and individual tax planning.

How to get the tax benefit:Compute the cost basis: The basis is the price you paid for your home and associated nondeductible closing costs which comes from your closing statement. Plus improvement costs you make to the home.
Compute the net selling price: The selling price from the closing statement from sale less any selling expenses is your net selling price on the home.
Compute the gain on the sale: Compute the gain by taking the net selling price and deducting the basis in the property.
You must live in it as a main place of residence for 730 days within the last five years prior to sale: If you and your spouse own a principal residence and decide to buy a second residence and simply use it an average of 3 days per week over a five year period prior to sale you can exclude the gain on the sale of that second home as well. $250,000 for one spouse that meets the tests and $500,000 if both meets the tests. This is not an uncommon occurrence these days because both spouses work. However, the exclusion cannot be taken more than once every two years so you cannot sell the other residence for another two years.

Reasons why this is so great:Real estate is one of the best investments you can make, because it almost always appreciates in value over five years of ownership. So you have a gain that you can pay no tax on if you meet the tests previously explained.
There is no requirement that the house you buy next be of equal or greater value than the one you sell. This was true with the rules prior to the 1997 tax act. So now you can buy a home of lesser value and still exclude the gain.

The interest deductions for qualified home mortgages can be as high as $1 million dollars and home equity interest can be as high as $1 hundred thousand dollars per year. This means you can invest in substantial amounts of real estate to maximize this exclusion of gain.
We specialize in small businesses and Individual tax planning. If you own your own business, you should have Reinert & Associates, PC help you keep more of what you make.
Visit our website: 
https://www.rreinert.net/

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