You might be among many South Carolina residents who are currently “on the fence” as to whether they should sell their homes. Some wonder whether there is a specific time of year that’s better from a seller’s perspective. Others are worried about issues like taxes and whether they will have to give a large portion of their proceeds to the IRS.
If you’re an adult who is employed in this state or any other, you are required to file federal income tax returns each year. In some cases, you might acquire money that you weren’t expecting during the year, such as winning a lottery or cash prize at a casino. A portion of your winnings may be taxed as income. This blog post provides tax information regarding a home sale.
Exclusions available up to a certain amount on a home sale
If the home you’re selling has been your primary residence for at least two years within five years of selling it, you may qualify for maximum exclusion, if you meet several additional requirements, as well. One of those requirements is that you haven’t claimed maximum exclusion on another home sale within two years of the current sale transaction.
If you are single, then any gain up to $250,000 on the sale of your home may be excluded as taxable income. If you’re married and file a joint tax return with your spouse, the excludable amount increases to $500,000. In short, this means that if you and your spouse sell your primary residence for less than $500,000, all proceeds may be excluded on your federal income tax return.
This does not mean that you don’t have to report the home sale
It is critical for sellers to understand that they must report a home sale on their federal tax returns regardless of the sale amount. Maximum exclusion is still available in accordance with eligibility requirements. However, if you’re selling a house, you must still report the sale to the IRS.
You must report the sale, then claim whatever exclusion is applicable to your situation. Even if all proceeds of your home sale are excludable, you must still report the full amount of the home sale to the IRS.
Various forms may be required when reporting a home sale to the Internal Revenue Service. Such forms include the 1099-S, which you would typically receive from your real estate agent or broker, as well as Form 8949, which you can print from the IRS website. You must then attach both forms to your regular 1040 form when you file your next federal tax return.
Make sure you understand all tax implications before a home sale
When selling a home in South Carolina, it’s understandable that you want to get the best deal possible. It’s also important to make sure your home sale transaction adheres to applicable tax laws. An experienced real estate agent or broker can clarify any issues you don’t understand to ensure that you do not incur legal problems with the IRS after selling your home.