What You Need To Know About Taxes If You Sold Your Home In 2022—Or Plan To Sell In 2023
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Loading... - Dylan Reid
- 24 Feb 2023
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It has been a wild ride for buyers and sellers in the US housing market over the past year. The year-over-year growth rate for home prices reached 20.1% in April 2022— the highest level in more than two decades. But rates fell after that, dropping to just 8.6% by November.
What does that mean? Homeowners may be grappling with gains and losses on sales, and that can translate to confusion at tax time. Here's what you need to know.
Not All Gain Is Taxable
Some taxpayers believe that any profit on the sale of a home is taxable—but that's not true. There is an exclusion on capital gains up to $250,000, or $500,000 for married taxpayers, on the gain from the sale of your main home. That exclusion is available to all qualifying taxpayers—no matter your age—who have owned and lived in their home for two of the five years before the sale.
And, there’s no rule that says what you have to do with the proceeds. Despite a popular rumor, you don’t have to invest in another home or investment to qualify for the exclusion. You could buy a new home, pocket the cash, or gamble it away at the Golden Nugget—the result is the same.
Main Home
The exclusion applies to the sale of your main home. If you have more than one home, your main home is typically the one you live in most of the time. And, your house doesn't have to be a single-family home—a condominium, a cooperative apartment, a mobile home, or a houseboat could all qualify as your main home.
Qualifying Criteria
You can meet the ownership and use tests during different periods—like year one and year three—so long as you must meet both tests during the five years.
The capital gains exclusion applies to your principal residence, and while you may only have one of those at a time, you may have more than one during your lifetime. There is no longer a one-time exemption—that was the old rule, but it changed in 1997. That means today you can use the exclusion multiple times so long as you meet the criteria each time. Read More…
