When preparing to sell a home, there are a few things to keep in mind.  The first one is that if you sold your main home in 2006, you may be able to exclude any gain up to $250,000 if your filing status is single, head of household or married filing a separate return.  If you are married and are filing a joint return, you may be able to exclude any gain up to $500,000.

Your main home is the home you lived in for most of the time for two of the last five years.  Additionally, if you have more than one home you wish to sell, the only one you can exclude the gain on the sale from is the one you lived in most, or your main home.  A main home can be a traditional house, houseboat, mobile home, cooperative apartment, or a condominium.  Keep in mind that if you sell the land in which your house is located, but not the house, you cannot exclude any of your gains on the sale.

The way to figure the amount of your gain or loss is summarized by the following equation:   

                                      Selling Price

                                   - Selling Expenses

                                     Amount Realized

                                      Amount Realized

                                   - Adjusted Basis

                                      Gain or Loss 

The selling price of your home is the total amount you receive for your home.  These amounts can be cash, notes receivable, mortgages, and/or other property or services received by you, valued at fair value.  Some of the most common selling expenses are realtor commissions, advertising fees, loan charges you paid, such as placement fees, more commonly known as “points”. 

Once you subtract the selling expenses from the selling price, you have determined the amount you will realize on the sale of your home.  From this amount, the adjusted basis must be subtracted. 

Basis is another way to say “what you have in the home”.  Your basis is its cost if you bought your home or you built it.  If you received your home by gift or inheritance, the basis is either its fair market value when you got it or the adjusted basis of the person you got it from.  In the case of inherited homes, the executor of the estate should be able to provide you the basis information.  There are a number of factors that can cause basis in a home to increase and/or decrease. 

To be sure you capture the right figures in selling your home, the IRS recommends you keep on record the home’s purchase price and expenses, receipts and records of all improvements, additions, and other items that affect the home’s adjusted basis, any other worksheets or papers you used to figure adjustments to your home’s basis.  In addition to these things, any Form 2119 that you have filed to postpone gain from the sale of a previous home before May 7, 1997 and their worksheets and papers. 

You do not have to include the sale information in your tax return unless your sales price exceeds the previously mentioned limits, or you sell your home on an installment sales, or seller-financed basis.  If you sell your home in a traditional manner and your gain exceeds your excludable limits, only the portion that exceeds the limit is taxable. 

Selling a home can become a frustrating and complicated experience.  If you are thinking of selling your home, or have recently sold your home, please contact us at 785-272-4484 to set up an appointment today to discuss any concerns or questions you may have.