It’s no secret that the United States tax code is a bit confusing, so it should come as no surprise that there’s often a lack of understanding regarding how home sales can influence a seller’s taxable income. Let’s dive into the nitty gritty and make things crystal clear by examining how selling your Rome house today will potentially impact your 2022 taxes.
Taxable Income
To get the ball rolling, let’s cover how any income you receive from the sale of your home falls under the umbrella of capital gains tax and how it will affect your 2022 raxes.
Capital gains tax is a fancy term for any personal income related to an investment when that investment is sold. The capital gains tax on the investment comes due on your taxes for the year in which that investment was sold, and this would include your home. However, there are quite a few different elements that can affect how much capital gains tax you owe, if any.
For the average seller, a key piece to avoiding capital gains on your home sale is making sure you used the home as your primary residence for a minimum of two out of the last five years. Another wrinkle is that these two years do not have to be consecutive. For example, if you lived in the home for a year, then rented it out for a year, and finally began living there once the renter’s lease was up, you would qualify for having lived in the home a minimum of two of the past five years.
This residency requirement is modified slightly for couples who were married within that five-year span. Both you and your spouse must have fulfilled this residency requirement and filed your taxes jointly to qualify.
Another point to remember concerning your 2022 taxes is that you cannot exclude your home sale from capital gains taxes if you did so with another home in the last two years. This stipulation exists to prevent smaller investors or flippers from trying to skirt capital gains on a regular basis.
Fewer Itemized Deductions
As a homeowner, you are likely familiar with providing your property taxes and paid interest when doing your taxes. Clearly, by selling your home you are going to be adjusting or eliminating these itemized deductions.
By reducing your itemized deductions, you’re more likely to see a greater benefit from taking the standard deduction on your 2022 taxes. Like most things on your taxes, the standard deduction is adjusted based on your filing status, but comes with the following guidelines: $12,950 for those filing as single, $12,950 for married filing separately, $19,400 for heads of households, and $25,900 for married filing jointly.
It’s likely that the adjustment or loss of deducting your property taxes and paid interest will cause a sizable alteration in your overall itemized deductions, so remember to take that into account and crunch the numbers carefully when filing your 2022 taxes.
Extenuating Circumstances
Not everyone can easily fall into these different categories, and other exemptions have been carved out to accommodate individuals finalizing a divorce, dealing with the passing of a spouse, and members of the armed, foreign, and intelligence services.
In the event of a divorce, you are able to sell a property that was awarded to you but only your ex-spouse lived in for a minimum of two of the past five years. The same qualifications exist in the event of a spouse’s death, except the sale of the home must be finalized prior to the surviving spouse remarrying. Finally, service members are given a special exception to the residence guidelines if they are living at a duty station at least 50 miles from their primary residence or living in government housing under government orders.
Inquiring about your exact circumstances with an accountant is the best way of fully understanding if you meet any of these guidelines.
Guidance on How Your Rome Home Sale May Impact Your 2022 Taxes
If you’re looking for professional guidance on how selling your Rome home may impact your 2022 taxes, contact us today at (315) 351-2765!