Even if you don’t sell your home in the spring, you may still be able to take advantage of a tax break and reduce your freelance tax burden this tax year. Our New York CPA office can help explain home-selling tax break. This is because the IRS allows gains made on a home sale to be excluded in all or part from your taxable income if these rules are followed:
- Home ownership and use. In order to qualify for the exclusion, you must have owned the home and lived in it as your main home for at least two years during a five-year period ending on the date of the sale.
- Thresholds for excluding gains. If you sell your primary residence and have a gain from the sale, you may be able to exclude up to $250,000 of that gain from your freelance income. If you file a joint return with your spouse, you may be able to exclude up to $500,000.
- Reporting gains on your tax return. If you are excluding all of the gain from your sale, you don’t need to report the sale on your tax return. If you aren’t excluding all of the gain or you are choosing not to claim the exclusion you must still report it on your tax return
- No deductions for losses. If you have the unfortunate situation of selling your primary residence for less than what you paid for it, you cannot deduct the loss from your taxes, unfortunately.
- Main residence only. If you happen to own more than one home, keep in mind you can only exclude the gain on the sale of your main home. You have to pay taxes on the gain from selling any other home.
- Mortgage debtmust be reported. If your sale includes any forgiven or canceled mortgage debt, it must be reported as income on your tax return (including any mortgage workouts, foreclosures, or other canceled mortgage debts). In addition, if you had debt discharged after December 31, 2017, it can’t be excluded from your income unless you have a written agreement for the debt forgiveness dated before January 1, 2018.
Keep in mind that there are some exceptions to these rules for some people with disabilities and specific members of the military, intelligence community and Peace Corps workers. However, if you are selling a home this spring or at any time this year, contact our NYC CPA office for assistance taking advantage of this tax break.