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Join Ralph Estep, Jr. as he discusses the important topic of reporting the sale of a primary residence. He provides information on the essential documents needed for accurate reporting, such as the closing statement, purchase and sales agreement, home...
In this episode of the Ask Ralph podcast, host Ralph Estep, Jr. addresses a common concern for homeowners: how to report the sale of your primary residence and prepare for tax implications. Sponsored by Saggio Accounting Plus, the show provides listeners with essential information on what documents are needed and how to navigate potential tax consequences.
Ralph begins by emphasizing the importance of gathering key documents when selling your primary residence. These include:
1. Closing Statement (Settlement Sheet)
2. Purchase and Sales Agreement
3. Home Improvement Records
4. Property Tax Records
5. Mortgage and Loan Information
With these documents in hand, Ralph then discusses capital gains tax exclusions available for individuals ($250,000) and married couples filing jointly ($500,000), provided they meet certain ownership and use criteria.
He also introduces the concept of partial exclusion based on specific circumstances like changes in employment or health issues.
To report the sale accurately to the IRS, sellers will need Form 1099-S from their closing agent or attorney and may need to file Form 8949 if there's a capital gain or loss involved.
Ralph warns that high earners might be subject to Net Investment Income Tax (NIIT) at an additional rate of 3.8% on investment income including capital gains from real estate sales.
State and local taxes can also affect your financial outcome after selling a property; therefore, consulting with a tax professional familiar with local regulations is crucial.
The episode underscores that reporting home sales can be complex; seeking advice from qualified professionals like those at Saggio Accounting Plus is recommended rather than attempting it alone due to potential risks involved with IRS compliance issues.
Listeners are encouraged to visit www.askralphpodcast.com for more information or contact Ralph directly through his website if they have questions or topics they want covered in future episodes.
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Ralph: Are you worried about owing a huge amount to the IRS? If you sell your home? Wondering what record you'll need to have ready for tax preparation. We're going to answer those questions today on the ask Ralph show.
Hello everyone. And welcome back to another episode of ask Ralph, a podcast where we answer all of your burning questions about personal finance and taxation.
I'm your host Ralph Estep, Jr. And today we have a very important topic to discuss. Reporting the sale of your primary residence.
Joining us as our sponsor for this episode is Saggio accounting. Plus providing comprehensive accounting services to individuals and businesses.
Reporting the sale of your primary residence may seem like a daunting task. But fear not. We're here to break it down for you and provide you with all the information you need.
So let's dive right in.
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Ralph: First and foremost, when you sell your primary residence, you need to gather some important documents. These documents will help you accurately report the sale and ensure compliance with tax regulations. Some of the essential documents include
Number one, a closing statement. This document also known as the settlement sheet or settlement statement provides a detailed breakdown. Of the financial transactions involved in the sale. It includes information about the purchase price, closing costs and any adjustments made between the buyer and seller.
Number two purchase and sales agreement. This is the contract between the buyer and seller outlining the terms and conditions of the sale. It includes details such as the sales price, closing date, and any contingencies.
Number three. Home improvement records. If you made any improvements to your home that may [00:02:00] affect the cost basis, it's important to keep the records of these expenses. This includes your receipts for renovations, additions, or any other significant upgrades.
Number four property tax records. You'll need documentation of property tax payments made during the time you owned the home. This will help determine the taxable gain or loss on the sale.
Number five mortgage and loan information. Gather all documents related to your mortgage or any loan secured by the property. This includes the original loan agreement. Statements showing payments made and any outstanding balances.
Once you have these documents in hand, it's time to consider the potential tax consequences and considerations of selling your primary residence. Let's explore some key points. The first thing I want to talk about is capital gains tax. In most cases, when you sell your primary residence, you may be eligible for a capital gains tax exclusion. As of 2023, if you're single, you [00:03:00] can exclude up to $250,000 of gain from the sale of your home. If you're a married filing jointly, the exclusion increases to 500,000. However certain criteria must be met such as owning and using home as your primary residence for at least the last two out of five years.
Now there also is a partial exclusion. If you don't meet the ownership and use requirements for the full exclusion, you may still be eligible for a partial, exclusion based on specific circumstances, such as change in employment. Health issues or unforeseen circumstances.
Let's talk about reporting the sale. To report the sale of your primary residence.
You will need IRS form 10 99 S which is used to report the proceeds from the real estate transactions. Additionally, you may need to file IRS form 89 49. If you have a capital gain or loss to report. This 10 99 S form is something you'll generally receive from the person who handled the closing, whether that be the attorney. , in the state of [00:04:00] Delaware in other states, it may be a closing agent.
Let's talk about net investment income.
or N I T. It's important to note that if your modified adjusted gross income exceeds certain thresholds . You may be subject to N I, I T. This additional tax of 3.8% applies to certain investment income, including capital gains.
We also need to talk about state and local taxes. Keep in mind that state and local taxes may also impact the tax consequences of selling your primary residence. It is essential to consult with a tax professional, familiar with your specific jurisdiction. To ensure compliance. Remember, these are just some general considerations and every situation is unique. It's always a good idea, to consult with a qualified tax professional to understand the full implications and requirements based on your individual circumstances. I mentioned this to my clients quite frequently, that this is generally. A time when people will come in to [00:05:00] see somebody like myself, because this has gotten a little bit bigger than a bread basket, as they say. And this is not the time to try to forge this path on your own.
This is a complicated situation. And you may end up putting yourself into some IRS jeopardy. If it's not handled correctly.
Thank you for listening to this episode of Ask Ralph, where we discussed, how to report the sale of your primary residence. We covered the essential documents needed such as the closing statement purchase and sales agreement, home improvement records, property tax records, and mortgage and loan information.
We also delved into the potential tax consequences considerations, including capital gains tax, partial exclusion reporting the sale with IRS forms. Net investment income tax and state and local taxes.
Remember reporting the sale of your primary residence can be complex. And it's always a good idea to consult with a tax professional who can provide personalized advice based on your specific situation. Stay tuned for more episodes of Ask. Ralph where we aim to bring you valuable insights and answers to your burning questions about [00:06:00] personal finance. And taxation.
This Episode was brought to you by Saggio accounting. Plus your trusted partner for comprehensive accounting services. Whether you're an individual or a business Saggio, you accounting plus has the expertise to meet your accounting needs. Visit their website or contact them at www dot. Ask ralph.com. Thank you again for tuning in.
If you have questions or topics you'd like us to cover in future episodes. Please reach out to our website@askralphpodcast.com. Where you can leave a review or even a voicemail message.
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