Monday, September 26, 2011

Sale of a Home and Effect on your Taxes

SALE OF HOME - If you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Here are ten tips from the IRS to keep in mind when selling your home.

1) In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2) If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3) You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4) If you can exclude all of the gain, you do not need to report the sale on your tax return. If the Title Company reported the sale on Form 1099-S, then you should report the sale on your tax return to avoid later correspondence from the IRS.

5) If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6) You cannot deduct a loss from the sale of your main home.

7) Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.

8) If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time. If you have a home with non-qualified use (use not as a primary residence after 2009), there are additional calculations that must be made to determine how much gain may be taxable on that sale.

9) If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.

10) When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

Arizona State Charitable Tax Credits

It's not too early or to late to plan for 2011 taxes, below are some steps you can take to reduce your Arizona tax liability. Arizona offers several tax credits:

1) Credit for contributions to Private School Tuition Organization. You may receive up to $500 ($1,000 MFJ) in state tax credit by contributing to one of the many private schools or tuition organizations in the state. To see more information and find a list of qualifying organizations, click here: School Tuition Organizations for Individual Donations

2) Credit for Donations to the Military Family Relief Fund. Make a cash contribution of $200, ($400 if MFJ) and support our AZ Military Families in need. Visit the Arizona Department of Veteran Services website for more information.

3) Credit for Contributions Made or Fees Paid to a Public School. Make a cash contribution of $200, ($400 if MFJ) to an AZ Public School (K - 12th grade). Help support your local school or find a school that can use the financial assistance. You can search for schools by name on the AZ Department of Education website.

4) Credit for Contributions to Organizations That Provide Assistance to the Working Poor. Make a cash contribution of $200, ($400 if MFJ) to a qualified charitable organization. For more information and to find a list of current qualified organizations, click here. You must itemize on your Arizona individual tax return to claim this credit.

By choosing the above listed credit options, you can designate where your money is directed.

A few notes about these credits:
- may also qualify as charitable donations on the Federal tax return.
- the credits are non-refundable, meaning it will reduce your tax liability by the amount of the credit and any excess credit will not be refunded to the taxpayer.

If you have questions, you can contact the office and we can provide answers to your questions. The phone number is 602.494.7641.