6 Tax Facts Home Sellers in the Los Angeles Real Estate Market Should Know

by KW Calabasas on General January 3rd has no comments yet!

Homeowners should seek information about the different tax laws when selling Los Angeles real estate. Red Blue Realty issues the following tips for prospective home sellers that are looking to take advantage of the current trend in the Los Angeles real estate market.

1. For sellers who have lived in their homes for two of the five years prior to the sale, have the ability to deduct up to $250,000 of the gain from their income. In cases where the homeowners are married and filing a joint return, the amount increases to $500,000. This means that a couple owning a home with a tax basis of $ 250,000 can sell the home for $ 750,000 without paying taxes on the $500,000 to the Internal Revenue Service. Moreover, they can take the exclusion every 2 years.

2. Los Angeles real estate sellers who sold another principal residence within the past two years and excluded the allowable gain from their income do not qualify for the above exclusion. This means that they must have lived in the property as their principal residence for at least two out of the five years ending on the date of the sale. Two years must also have elapsed since the last deduction.

3. Those who can exclude all the gain from the sale of their primary residence do not need to report the sale on their tax return. Gains that cannot be excluded are taxable and have to be reported on Form 1040, Schedule D, Capital Gains and Losses.

4. If a seller for one of the Los Angeles homes for sale has a gain on their primary residence that exceeds the allowable deduction, it is taxable. Where a homeowner has two homes, the one they spend most of the time in is considered their primary residence. Therefore, they have to remit taxes on the sale of any other home.

5. Those selling their homes cannot deduct a loss from the sale of their primary residence. The exclusion breaks do no apply to personal assets that homeowners may sell for profit. Any income from such a sale is therefore counted as reportable income during the year of the sale. Home sellers cannot deduct any loss on the sale of personal assets, as they did not buy them to earn income or make profit. Profit on the sale of a home cannot be reduced by any loss suffered from the sale of such items e.g. furniture. Basically, their sale is treated as a separate transaction.

6. Special rules apply when selling a home for which the homeowner received the first-time buyer credit. For instance, if a homeowner receives the credit and stops using the property as their primary residence within 36 months, they are required to repay the credit. The repayment is due with the income tax return for the year the home stopped being used as their principal residence.

A good Los Angeles real estate agentshould be able to clearly explain the above tax facts to their clients selling homes. It is important to note that a realtor is not a licensed CPA, and any and all information regarding taxes should be confirmed with an experienced tax accountant.

Check out http://www.redbluerealty.com for all your Los Angeles real estate needs.

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