OK, we’re not CPA’s (and “we don’t play them on TV”), but we do see a lot of last-minute chaos come tax day when it comes to having purchased or sold a home.
A few reminders that might help you avoid issues in the future—and please consult your tax professional for more details related to your specific situation:
1) Married couples can gain up to $500k on the sale of a home as long as they have used the home as their principle residence for 24 months out of the last 5 years. This exclusion can be used over and over with each home purchase!
a. Single owners can gain up to $250k.
2) When calculating your cost basis (which, then, allows you to accurately establish your gain), don’t forget to include not only your original purchase price, but all of the capital improvements you made over the years. But be clear about “improvements”…repairing a roof, for instance, may just be maintenance, while replacing a roof would be a capital improvement.
a. If you owned the house for 20 years and replaced the roof twice, only the last roof replacement would be counted toward your cost basis.
b. Save yourself some headaches down the road by keeping receipts and/or an electronic record of expenses. Quicken is great, as is Excel, but a basic handwritten ledger will do!
3) Consult your tax professional concerning investment property
a. Did you depreciate the property every year? There is a different tax % on the value of the depreciated portion vs the remainder
b. Does the new 3.8% tax (effective in tax year 2013) pertain to you?
Last year Mary’s family sold a cottage purchased in 1946, and we really had to scramble to collect receipts for projects completed over the last 3 generations by a number of family members–so we know from personal experience how challenging the endeavor can be! (and, by the way, she highly recommends the book “Saving The Family Cottage” by Stuart Hollander for those of you who co-own vacation property!)