(NEXSTAR) – Are you working on your taxes in a different home than you were last year? This may affect your application.
The housing market remains hot through 2021 – existing home sales in the US hit 6.12 million, according to the National Association of Realtors. This is an 8.5% increase from 2020 and the highest level since 2006.
In most cases, when you buy a home, according to Mark Steber, chief tax information officer of Jackson Hewitt Tax Services, the way your taxes are paid fundamentally changes.
“For most Americans, you fall outside the simple standard deduction category,” Steber explains. Instead, you will be a detailed taxpayer. It’s a “more complicated return,” Steber continued, but “arguably a better situation for many Americans who spend those costs.”
While there are many tax breaks for buying a home, one of the most important is often the mortgage interest deduction. That information can be found on Form 1098 as long as you receive $600 or more per year, says Lisa Greene-Lewis, CPA and tax expert at TurboTax.
You can also deduct local property taxes and mortgage insurance payments you paid during the year.
“When you buy a home, your taxes get a lot more complicated,” Steber adds.
Selling a home doesn’t make your taxes any easier. If you’ve lived in your home for a long time, you can get a break on the profits from the sale.
First, yes, you usually need to report it on your tax return if you sell a home. According to TurboTax, you need to report the sale if you receive a Form 1099-S or if you don’t meet the requirements for excluding the gain on the sale of your home (see below).
As Steber and Lewis explain, up to $250,000 (if you’re single) or $500,000 (if you’re married and filing jointly) of your gains can be tax-free if certain conditions are met. To qualify, the home must have been your primary residence for at least two of the five years prior to the sale.
If you sell at a loss, you cannot take this deduction. If the gain from the sale exceeds either of the above limits, the gain must be reported as capital gain. There are also certain exclusions between two and five years – examples include if you have to move “early” due to a change in work or health, or other unforeseen circumstances.
Finally, if you’re buying or selling a home in 2021 and you’re not a tax professional yourself, both Steber and Lewis recommend talking to a professional before filing your taxes. You can also review an IRS publication regarding tax information for homeowners.