Consider These Tax Issues When You Sell A House

It's important to remember that when you sell a house that is not your primary residence there will be tax consequences of your sale. My purpose in writing this article is to provide a perspective for sellers who may not be familiar with issues separating the sale of investment property from the sale of a residence.

Whenever you sell a home that is your primary residence for tax purposes, there are unique tax consequences regarding your profit on the sale. The IRS publishes several pamphlets on the subject of selling your primary residence, and the same information is available online as well. I am simply listing some of the issues unique to the sale of investment property in this article to show how it's treated differently.

Regardless of whether you are researching the topic online or in print publications, make sure you thoroughly understand the following: definition of a sale or trade, calculation of gain or loss, non-taxable trades, transactions between relatives, capital gains or losses, capital assets and non-capital assets, and holding periods. Because I have been investing in single-family houses for several decades, I've seen certain laws and IRS rules change many times.

Changes to Federal regulations regarding installment sales may have serious consequences for many real estate investors who buy houses and resell them on contract to the buyer. That means the buyers, who may be people living in the house paying rent, have decided to purchase the house by making payments directly to the seller. An installment sale is in which the seller receives monthly payments that include principal and interest. The buyers make their payments just like paying a mortgage company, but they are paying the seller instead. This arrangement can be financially beneficial to both the seller and the buyer.

However, Federal and state regulations can become a challenge and difficult to apply directly when the nature of your house has changed. Let's say you lived in your house for several years and then leased it out instead of selling it when you moved into a new house. Your first house, although it started out as your primary residence for tax purposes, actually became an investment property when you began to collect lease payments. And that's the same time your second house became your legal residence.

This situation has become somewhat common as a result of the housing crisis and the depressed economy. If you have moved out of your house and now you are leasing it, take the time to consult with a tax advisor or tax attorney. I'm sure that many of your questions will be beyond the expertise of tax shop employees, so don't ask people who work at the shopping mall tax stores. We are discussing an important issue in real estate investment taxation, an issue that you do not want to overlook when you sell a house quickly or lease a house.

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com