Roll the dice, odds are big brother may come calling for some tax money on the sale of your Baie-Comeau home. But if you do your homework, and pass the test, mostly all of that money can stay in your pockets, though you might want to put it in a bank. Scratch that, keep it in your pocket, it's safer there.
Selling Property at a Profit
Many individuals will make a profit on the sale of their home and still will not have to pay any additional income tax to the Internal Revenue Service (IRS). You have made a profit if the selling price of your home is greater than the price you paid to purchase the home. That profit is considered a capital gain, and is subject to income tax. Under certain circumstances the law allows you to exclude all or part of that gain from your income, therefore you may not have to pay taxes on the profit. The exclusion, up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns, is not a once in a lifetime event. The exclusion may be claimed each time that you sell your main home, but generally not more often than once every two years.
To qualify, you must meet both the ownership and use tests:
- Ownership Test: You must have owned the home for at least two years in the five-year period ending on the date of the sale.
- Use Test: You must have lived in the home as your main home at least two years during the five-year period ending on the date of the sale.
For additional information on selling your home, please visit the IRS Publication 523 (.PDF document).
Mortgage Forgiveness Debt Relief Act of 2007
When the outstanding debt against a property is more than the amount it is worth it is often referred to as a "short sale" in the real estate industry.
According to the IRS, homeowners whose mortgage debt was partly or entirely forgiven may be able to claim special tax relief by filling out Form 982 - Reduction of Tax Attributes Due to Discharge of debtedness (.PDF document), and attaching it to their federal income tax return. Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. The law applies to debt forgiveness in 2007, 2008 or 2009. Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return.
For additional information, please visit the IRS Mortgage Forgiveness Debt Relief Act web page.
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