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In 2021, Should You Buy or Sell a Home? Here’s How It Can Affect Your Tax Situation.


Are you doing your taxes in a different place this year than you did last year? This could affect your paperwork.

The housing market remained hot until 2021, with 6.12 million existing-home sales in the United States, according to the National Association of Realtors. This is an 8.5 per cent rise over 2020 and the greatest level since 2006.

According to Mark Steber, chief tax information officer for Jackson Hewitt Tax Services, when you buy a house, the method you file your taxes fundamentally changes.

“You move out of the simple standard deduction category for most Americans,” Steber explains. Instead, you’ll have to file an itemised tax return. According to Steber, this is a “more convoluted return,” but “certainly a better scenario for many Americans who suffer those expenses.”

An advocate cautions that the IRS is buried with paper and that returns may be delayed as a result. While there are several tax benefits to purchasing a home, deducting mortgage interest is usually one of the most favourable.

According to Lisa Greene-Lewis, a CPA and tax expert with TurboTax, if you got $600 or more in a year, such information can be found on Form 1098.

You can also deduct local property taxes and mortgage insurance fees paid during the year. “When you buy a house, your taxes get a lot more complicated,” Steber adds.

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Selling a home isn’t always a good idea when it comes to taxes. However, if you’ve lived in your home long enough, you may be eligible for a discount on the sale proceeds.

To begin, you must normally disclose the sale of a home on your tax return. If you received a Form 1099-S or don’t fulfil the standards for excluding the gain on the sale of your house (see below), you’ll have to declare the sale, according to TurboTax.

Even though mortgage rates have risen to 4%, buyers might still improve their prospects. According to Steber and Lewis, if certain circumstances are met, you might have up to $250,000 (if you’re single) or $500,000 (if you’re married and filing jointly) of your gain tax-free.

The home must have been your primary residence for at least two of the five years preceding the sale to qualify.

This deduction is not available if you sell for a loss. If your profit from the sale exceeds either of the aforementioned thresholds, you must report the excess as a capital gain.

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There are several exceptions to the two-out-of-five-year rule, such as if you must relocate “early” due to a change in employment or health, or other unanticipated circumstances.

Finally, if you bought or sold a house in 2021 and aren’t a tax pro, Steber and Lewis both advised consulting with a professional before submitting your taxes.

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