While channel surfing, you may have come across a show called, “Love It or List It.” This show is about couples that have to choose whether to buy a new house or upgrade their current home. Each couple has a reason for disliking their house: they need more space for their growing family, the house is falling apart, or they want a more modern layout. Deciding to sell your property can be a difficult decision, but hopefully this post will provide valuable information about moving, including the tax implications of a move.
According to 2014 poll, the top reason to move is for a new or nicer house. The next highest reason was due to work or family reasons. The need to move can result from a variety of reasons. The desire for change can be internal like wanting to have another child or external like wanting a neighborhood change. Sometimes, people feel pressure to downsize due to failing health or wanting to upgrade after a promotion. Whatever the reason, moving can seem daunting even though you are excited to make a start fresh. One such daunting task is the tax implications related to moving.
Taxes are a not-so-fun part of life, but the federal government does offer ways to gain tax savings from the sell of your house. Normally when you gain a large amount of income, the amount you must pay in taxes will go up. But, the government has special rules governing the sell of a house. Specifically, when you sell your house and gain money you can exclude up to $250,000 of that gain from your taxes or if you are a married couple, filing jointly, you can exclude up to $500,000. You can take advantage of this rule if you owned and lived in the house for at least two of the past five years. The five-year period counts backwards from the date of the sale and the ownership doesn’t have to coincide with living in the house.
In addition, two tax issues occur when you have a mortgage on your house. If you currently have a mortgage and take a mortgage income tax deduction, you’ll need to figure out if the deduction will change from paying off the mortgage or gaining a new one when you purchase your new house. Also, if the mortgage was foreclosed, then you may be able to make use of the Mortgage Forgiveness Debt Relief Act. This Act provides that if the debt is forgiven or cancelled, then that amount does not have to be reported as income. The debt must come from a mortgage used to buy, build, improve, or refinance your principal residence. Finally, the last issue to remember involves your moving expenses. These expenses might be deductible if you’re being relocated and the new position is at least 50 more miles away from your old home than your old job was from your home.
THE TAKEAWAY: As you have read, there are many reasons to move. A move might be overwhelming, but once you understand the implications of a move, you will know what you need to do and when. While taxes aren’t that enjoyable, the discussion above shows that the government has put in some helpful rules. These rules might allow you to keep gains from the sale of your house as untaxed or deduct some moving expenses.
– The Business Team
Scott | Josh | Jeremy
The Allen Firm, PC 181 S. Graham Street | Stephenville, Texas 76401 Ph: 254.965.3185 | Fax: 254.965.6539