If you sell a home that is not your primary residence you will need to take into consideration the tax consequences of the sale. This article is basically a heads-up for anyone who has not become familiar with some of the issues that make selling investment property quite different than selling a residence. When you sell a home where you live, the home that is your legal residence, then there are separate tax consequences regarding any profit you make on the sale. Fortunately, there are many IRS publications on the subject of the sale of your primary residence. In this article I am simply listing some of the issues unique to the sale of investment property.
Online or in print you will want to make sure you're familiar with 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. Over the years that investing in single-family homes has been popular for many people certain laws have changed, and IRS rules have changed as well.
Most recently there have been changes to Federal laws regarding installment sales, and these changes may have serious consequences for real estate investors who routinely buy homes and resell them on contract. By that I mean that the buyers, perhaps the same people who moved into the home and began paying rent for a period of time before negotiating to purchase the home, pay the seller directly. In an installment sale the seller accepts monthly payments towards the principal and the interest, so the buyers are making a payment to the seller just as they would pay a mortgage company if they had borrowed money to buy the home.
The laws and rules become a little more difficult to apply when the character of a home has changed over time. For example, perhaps you lived in a home for ten years, and then you started to lease it when you moved into a different home. In this scenario the first home started out as your residence, and then it became an investment property when the second home became your residence.
This is not an uncommon situation in the current economy, and it's one that should cause you to consult with your tax advisor or even a real estate attorney. Some of your questions may be more complicated than the average shopping mall tax shop employee can handle. This is a very important aspect of real estate investment, and it's one that you do not want to overlook when you sell a home.
Online or in print you will want to make sure you're familiar with 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. Over the years that investing in single-family homes has been popular for many people certain laws have changed, and IRS rules have changed as well.
Most recently there have been changes to Federal laws regarding installment sales, and these changes may have serious consequences for real estate investors who routinely buy homes and resell them on contract. By that I mean that the buyers, perhaps the same people who moved into the home and began paying rent for a period of time before negotiating to purchase the home, pay the seller directly. In an installment sale the seller accepts monthly payments towards the principal and the interest, so the buyers are making a payment to the seller just as they would pay a mortgage company if they had borrowed money to buy the home.
The laws and rules become a little more difficult to apply when the character of a home has changed over time. For example, perhaps you lived in a home for ten years, and then you started to lease it when you moved into a different home. In this scenario the first home started out as your residence, and then it became an investment property when the second home became your residence.
This is not an uncommon situation in the current economy, and it's one that should cause you to consult with your tax advisor or even a real estate attorney. Some of your questions may be more complicated than the average shopping mall tax shop employee can handle. This is a very important aspect of real estate investment, and it's one that you do not want to overlook when you sell a home.
About the Author:
Lots of home owners are now seeking ways to sell a home in Wichita Falls quickly for cash without charges or closing costs. Leo Kingston, operator of 18002SellHomes, now provides household owners a simple way to sell their dwelling for cash in thirty days.
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