Tax deductions

Tax Deductions U.S. Home Sellers Need to Know When Filing Returns This Year

Every week, Mansion Global poses a tax question to real estate tax lawyers. Here is this week’s question.

Q. As tax day approaches, are there any new tax deductions related to my home that I should be aware of?

A. Not much has changed in terms of housing-related property deductions for the 2021 tax year.

However, with house prices soaring, those who sold residential properties last year may want to revisit the Section 121 exclusion. It allows some sellers to deduct some of that gain from their returns. of federal revenue.

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The Section 121 exclusion allows home sellers “to exclude up to $250,000 of this gain from your income, or up to $500,000 of this gain if you file a joint return with your spouse.” , according to the IRS.

To be eligible, sellers must have used the property as their primary residence for at least two of the five years prior to its sale. Those in long-term service in the U.S. Uniformed Services, Foreign Service, or Intelligence Community may be able to extend this period up to 10 years.

Adjacent parcels of vacant land may also be eligible to be included in the exception, if the land was used as an extension to the house and was sold within two years of the transaction for the house, the IRS said.

There are several notable exceptions. For starters, “you are not eligible for the exclusion if you excluded the gain from the sale of another home within the two-year period before you sold your home,” according to the IRS.

Sellers who acquired the property through a like-kind exchange, also known as a 1031 exchange, within the past five years are not eligible for the deduction. Persons subject to an expatriation tax are also ineligible.

Also, a divorced owner of a home who transfers ownership to their ex-spouse is not eligible for the Section 121 exclusion. All eligibility requirements are outlined by the IRS.

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