Question:
“I’m selling my home. My proceeds will be under 250K, so I won’t have to pay any taxes…”
Answer:
Hold on! That’s not how you figure out whether you owe taxes when you sell your home.
Taxes are not based on the size of your check at closing. If it were, everyone would put a big fat loan on their home before they sold and outsmart the taxman.
Instead, taxes are based on gain, aka profit.
The basic formula is this:
Selling price
– Selling costs
– Improvement cost
– Purchase price
– Purchase costs
= Profit
As you can see, the amount of your check at closing is not in that equation.
And in case you don’t know, when you sell your principal residence you get a BIG tax break if you’ve owned and lived in it for at least 2 of the past 5 years.
Singles get the first 250K tax free; couples get 500K.
(The rules for investment property are different and I won’t go into those here.)
