IRS’s top 10 tax tips for home sellers

From time to time the IRS releases tips designed to help people with their taxes. Some of these are quite useful.

Last week the agency released “Ten Tax Tips for Individuals Selling Their Home,” (IRS Summertime Tax Tip 2011-15).

As a real estate agent or broker, it is not your job to give home sellers tax advice. Indeed, it is advisable not to, since you could end up getting sued if you give wrong advice.

Instead, refer sellers to this list of IRS tips. It’s a good starting place for them to begin to understand this often complex area of tax law. You could even print it out and hand it to anyone who asks you about these issues.

Here are the IRS’s top 10 tax tips for home sellers:

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4. If you can exclude all of the gain, you do not need to report the sale on your tax return.

5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6. You cannot deduct a loss from the sale of your main home.

7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.

8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.

10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

These tips can be found on the IRS website at,,id=104608,00.html.

from “Real Estate Tax Talk”  By Stephen Fishman, Monday, August 15, 2011.

Stephen Fishman is a tax expert, attorney and author who has published 18 books, including “Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants,” “Deduct It,” “Working as an Independent Contractor,” and “Working with Independent Contractors.” He welcomes your questions for this weekly column.

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Is it ok to buy from or exchange with a related party?



Buying a replacement property from mom and dad in a 1031 exchange may be possible after all! In three separate Private Letter Rulings (PLR’s), 200616005, 200810016 and 200807005, the IRS ruled that if the taxpayer is buying a replacement property from a related party and the related party also does a 1031 exchange, then the exchange would be all right.

A related party is defined as a family member of lineal decent or a person owning more than 50% of an entity. The IRS has looked unfavorably on a taxpayer purchasing their Replacement Property from a related party in a 1031 exchange. The reason Congress addressed related parties in the tax code was its concern over possible basis shifting to avoid paying taxes. In the latest PLR’s, the IRS reasoned that since the parties did not cash out, there was no intent to avoid tax.A PLR is written specifically for the taxpayer that petitions the IRS for a ruling, therefore PLR’s are not tax precedent. They do, however, give an indication of the IRS interpretation of the tax code. The fact that we now have three PLR’s supporting the same argument, gives some comfort that if the taxpayer and the related party perform a 1031 exchange it would be acceptable to the IRS.

If a taxpayer is considering buying a replacement property from a related party in a 1031 exchange they should always seek good tax council.

from Starker News 2nd Qtr. 2011



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