As a landlord how do you know what deductions and tax strategies to undertake when you plan on either selling your home or planning to acquire more properties? Simple you first job is to contact a strategic accountant or CPA who specializes in all thing’s real estate. Alongside Arizona the real estate market in Florida is quietly one of the hottest in the country if not the hottest. Above all the purpose of this article to educate new landlords and homeowners on the benefits of utilizing specific tax strategies and deductions which will not only give you a peace mind but help you acquire additional properties. There is no magic bullet when it comes to reducing your tax liability when you sell a home, but the Universal Exclusion Rule happens to be one of those valuable s strategies which can save you hundreds of thousands of dollars.
General Rule is that you can exclude up to $250,000 dollars of gain from your sales of principal residence or $500,000 if married filing jointly!
There are certain requirements which must be met to qualify for this exclusion:
- You must have lived in the principal residence for 2 out of the 5 years
- You must not have used the exclusion within the past 2 years
- You must have owned the property for 2 years
If all three of these requirements are met, then Vola you qualify! To illustrate further, let us say you sold a property for $300,000 and your basis was $100,000, leaving you with a gain of $200,000. Now paying taxes on that $200,000 would be excruciatingly painful, but through the exclusion rule the entire gain of $200,000 gets WIPED OFF! Guess what you can do next? That is right buy/acquire another property and sell it after making it your principal residence for 2 years, again the tax rules can be confusing at times which is why you need a good tax team by your side.
While some people may not love the idea of buying a home and want to travel/adventure the world, I can assure you that two years go by extremely fast and nothing could be sweeter than being able to avoid paying additional taxes! Did I mention that there are some key tax deductions and write-offs that could lower your tax burden even if you do not sell your home? However, I need to emphasize this – you must be able to demonstrate that you owned your property for two years and used it as your principal residence. If you do not then the IRS will not allow this exclusion, if you’re looking into this exclusion then we highly advise that you meet with your strategic CPA to go over all possibilities.
By the same token, the IRS understands that life can throw curveballs and you may have to turn lemons into lemonade. Changes in employment, health and other drastic circumstances are exceptions which the IRS will accept. For instance, if you had lived in your principal residence for six months but had to suddenly relocate due to work and sell your home; you will be allowed to take advantage of the $250,000 exclusion. Proper tax planning strategies can help reduce if not eliminate your tax liability. We are not talking about creating illegal tax shelters, we are talking about perfectly legal strategies. The importance is to have good recordkeeping, creating advantageous business entity structures and proactively schedule meetings with your CPA.
Get in touch: www.fitbizcpa.org