When you sell your home for more than you purchased it, that gain is taxable. The good news is that there is a gain exclusion on the sale of your primary residence, as long as you meet specific criteria. The gain exclusion allows you to exclude up to $250,000 ($500,000 for married couples) on the sale of your home.
It’s important to remember that any gain excludes improvements you’ve made to the property. It’s this basis (what you paid for the home originally plus costs for improvements while you owned it) that determine how much gain you make on the sale of the property, so keep meticulous records of any improvements to ensure you have an accurate basis for your home. Remember that improvements and repairs are not the same thing; improvements add value while repairs do not. You’ll want to document improvements such as:
- Bathroom or kitchen upgrades
- Heating system upgrades
- Swimming pool installation
- New driveway paving
- Security system installation
- And more
Your best bet is generally to keep records of all improvements and repairs; when the time comes to sell, you can determine which expenses factor into the basis without worrying that some documents might be missing.
For tax questions of any kind, including regarding selling your home, call on Taxation Solutions, Inc. We’re happy to provide tax help in any way we can!