Here are a few handy IRS tax laws that you may be able to take advantage of.
Are you thinking about selling your home but have concerns about capital gains taxes? Market values have been shooting up over the last few years and you may be looking at a big tax bill if you sell. Wouldn’t it be great to apply some of that appreciation to your investments after you sell your home? Today we’re showing you how to defer taxes through the sale of your personal residence by using a few different methods.
In residential real estate, there are two IRS laws that can be used to grow wealth. The first is a Section 121 exclusion. This allows homeowners to exclude capital gains from the sale of their primary residence up to $250,000 for single taxpayers or $500,000 for married couples who file jointly.
The second law concerns selling rental property and is known as the 1031 tax-deferred exchange. It allows you to defer paying capital gains taxes when you sell an investment property by reinvesting the proceeds from the sale into another property.
There is a way you can actually take advantage of both of these laws. It’s called the Revenue Procedure 2005-14. Once you sell your home, you take the tax exemption under Section 121, then roll the remaining proceeds into an investment property under the 1031 guidelines.
Two rules need to be followed for this to happen:
1. You must have lived in the property as your personal residence for two out of the last five years.
2. It must have been a rental property immediately prior to the sale.
We’re licensed real estate professionals and are aware of the potentially profitable situation this sets up for you. However, this video is not tax advice. You need to talk with a qualified CPA or tax attorney regarding these matters.
If you have any questions about your options or anything else related to real estate, don’t hesitate to reach out via phone or email. We look forward to hearing from you soon.