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Real Estate Advice: Tax obligations when selling a home
Linda Goodspeed, Correspondent
Q: What happens if I sell my primary residence to help pay my medical expenses? Will I have to pay capital gains taxes if the gain is less than $500,000?
A: Your decision to sell your primary residence to pay for your medical expenses should not change what you owe the federal government in taxes, provided you meet the requirement that you lived in the property as your primary residence for two out of the last five years. If this is the case and you are married, you can exclude up to $500,000 in gain from taxes, $250,000 if you are single. In addition to federal taxes that you may or may not owe, there may be state taxes owed depending on the size of your estate or the amount of profit from the sale.
Real Estate Advice: Sell the vacation home, or leave it to the kids?
Linda Goodspeed, Correspondent
Q: According to what I understand, if I sell my vacation home I will have to pay taxes on the sale. But if I leave the home to my two children, they will not have to pay any taxes as long as they sell the home shortly after my death. Am I correct?
A: Not all real estate is equal, tax-wise, in the eyes of the IRS. Primary residences and vacation or investment homes are treated differently.
For example, the IRS gives homeowners who sell a primary residence a huge tax break as long as they have lived in the home as their primary residence for two out of the last five years. If they meet that definition and sell the home for a profit, they will not have to pay any federal taxes as long as the profit does not exceed $250,000 for a single homeowner, or $500,000 for a married couple.