1040 U.S. Individual Income Tax ReturnMany people wish to pay their home but are unsure of how doing so will impact their income taxes. One may wish to move out of their house but may not do so out of fear that they will not be able to pay the IRS at the end of the year. I am writing this article to provide information on the fact that many Dayton individuals are eligible for an “exclusion” from paying taxes on the sale of their Ohio home. If you wish to sell your residence then contact me today to speak with a real estate agent.

Many Dayton residents will not pay taxes on the sale of their home if they pass the IRS’ “ownership and use” tests

Federal tax law possibly exempts an individual from paying taxes on the first $250,000 of gains from the sale of their home. This exemption is raised to $500,000 for most married couples. It is important to understand how one’s “gain” is calculated. It is also important to understand when one is eligible for this exemption. I will discuss each of these issues in turn.

A Dayton homeowner’s “capital gain” on a home is the amount they sell it for minus what they paid for the home. Say you bought your Dayton home for $100,000. Now say you sold it, ten years later, for $175,000. Your gain would be $75,000 ($175,000 – $100,000). If you do not qualify for the IRS exemption, which I will discuss momentarily, then you will have to pay federal income taxes on the $75,000. Obviously, having to pay taxes on the proceeds of the sale can impact one’s decision as to whether or not they should sell their home.

The IRS will not require a single person to pay federal income taxes on the first $250,000 of gains from the sale of their home if they pass an “ownership and use” test. This exemption is raised to $500,000 for married couples who file a joint return. There are two parts to this test. First, you must have owned the home for at least the last two years prior to the sale. Second, you must have lived in the home for at least two years out of the last five. The two years of residency do not need to be continuous. If one meets this test then they will pay no taxes on the first $250,000 of gains. If their gains exceed $250,000 then they will only pay taxes on the surplus – gains of $260,000, for example, will result in $10,000 of taxable gains ($260,000 – $250,000). For obvious reasons, eligibility for this exemption can impact one’s decision as to whether they are going to sell their home.

Dayton, Ohio home values mean that many residents will not pay federal income taxes on the sale of their residence

The above-discussed tax exemption is of great benefit to many homeowners in our area. According to Zillow, the current median price of a home in our area is roughly $117,000[1]. For many homes in our area an owner who meets the “ownership and use” test will have gains which fall below the $250,000 threshold. Those who sell such homes could possibly pay no federal income tax on their gains. This is very different from other parts of the country, such as many coastal cities, where home prices are much higher. This means that many homeowners in our area may have a tax advantage over those in more expensive cities.

If you are considering selling your residence then contact me today to speak with a Dayton real estate agent. I pride myself on providing a high level of service and I look forward to speaking with you. I also service the areas of Beavercreek, Centerville, Clayton, Englewood, Oakwood, Fairborn, Harrison Township, Huber Heights, Kettering, Miami Township, Miamisburg, Riverside, Springboro, Trotwood, Vandalia, Washington Township, West Carrollton, and Xenia.

Disclaimer: This article should not be construed as the giving of legal or tax advice. The author of this article, and all associated parties, in no way hold themselves out to be attorneys or tax professionals. The content of this article is purely for informational purposes only. If you have tax related questions as to the sale of your home, or any other matter, then it is suggested that you speak with a licensed professional.

[1] Dayton Metro Home Prices & Values via Zillow – accessed at https://www.zillow.com/dayton-metro-oh_r394521/home-values/, on August 2nd, 2018.

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