Selling a home can make you feel like a weight has been lifted off your shoulders. When you no longer have to worry about the maintenance and upkeep of your home, you can also reduce worries about finances. Whether you have a house payment or not, there are still expenses to be addressed. Taxes and insurance can cost a lot depending on where you live, and when you want to sell you often have to do work on your home before you can do that. Overall, homes can be costly. When you reduce your costs and make your home more affordable it’s easier. But what about the tax implications of selling a house?
Is It Your Personal Home?
According to the IRS, you can’t deduct a loss on the sale of your personal residence. It doesn’t matter how many years you lived there or how much you lost. If it’s your residence, the loss isn’t deductible. That’s very frustrating for a lot of people who bought when the market was high, because some of them have had to sell when the market was much lower. With that in mind, being sure that you know what your home is worth and what you can sell it for matters, but can be difficult to determine because the market is subject to change. The better deal you get when you buy, the lower the chances you’ll have to sell at a loss.
Do You Have Investment Properties?
When you have properties for investment, the rules are different. You can take a loss on those properties, because they aren’t your personal residence. An article in The Washington Post details information regarding investment homes and what you can come to expect from the IRS when you have to sell an investment home at a loss. In many cases, it’s much easier to write off losses that come from investment properties, as long as you can document those losses correctly. If you aren’t able to show your losses the right way, you may find that the IRS rejects what you’re trying to claim as a loss.
What Paperwork Do You Need?
If you sold a home in the last year, you’ll want to be able to show the IRS what you paid for it and what you sold it for, so you can make sure you don’t owe capital gains tax. If you took a loss on the home you won’t owe anything, but you likely won’t be able to claim that loss for any kind of deduction. Additionally, you’ll want to be careful about keeping paperwork from any investment properties, so you can claim any money you made and also show any true losses you had. Not all investment properties make money, and when you sell one at a loss you want to be able to prove that deduction.
Do You Need Professional Help?
A lot of investors choose not to look for professional assistance, but it varies from situation to situation. You should always speak to a financial advisor or accountant when dealing with tax implications. An accountant or legal professional familiar with what you’re doing can be a good choice, and can also help ensure that you have the right information to provide to the IRS when you’re claiming a loss on the sale of a house.