Taxes nowadays seem to overflow in American society and in consumers’ lives. Food and clothing purchases, as well as income, are all taxed. Real estate purchases are not exempt from taxation.
Many peoples’ main goal of home ownership involves making a profit off the home they purchased in a subsequent sale. One main reason to do this is to be able to save up enough for a larger down payment on the purchase of a new home. If you make a hefty profit as a result of the sale of your old home, though, you might be disappointed to be taxed on this excess of money if it makes it harder to purchase a new home. In a situation like this, it’s worth it to familiarize yourself with the provisions in Internal Revenue Code 121.
Internal Revenue Code 121 (or IRC 121, for short) repealed and replaced the Taxpayer Relief Act of 1997. It is essentially a way for people who sell their primary residence with the intent of buying a new one to exempt any money made on the sale from taxes they otherwise would have had to pay.
This code section is not without its restrictions, however. If you want to take advantage of the IRC 121 tax exemption, the home from which you earned the money must have been your primary residence, first and foremost. A second requirement is that the homeowner must have owned the house for at least five years and have lived in it for at least two of those five years to qualify. There are maximum amounts that can be exempted, though, and they are $500,000 and $250,000 for couples and individuals, respectively. If the profits are less than the maximum cap but more than the amount you had to repay on your mortgage, the IRC tax exemption kicks in .
IRC 121 is consequently a very useful and important part of the Internal Revenue Code to know. If you bought your home in a down market and are hoping to subsequently sell it for a profit in order to buy another home, it’s prudent to familiarize yourself with its terms. If you are unsure of anything, the best way to go is to hire a certified tax professional to make absolutely certain you’re able to qualify for it.
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