Tax Guru – Ker$tetter Letter

Q:

Subject:  Buying a new home, 2 tax questions

1)      is the sale of my current home a tax-exempt event?  We’re in our 40’s and are moving to a larger house (if any of that affects the answer)

2)      at closing, the sellers will bring prop taxes up to date (a little over a year’s worth of taxes).  Shortly after that, spring 08 taxes will be due and paid by us.  Do we get to deduct that property tax payment on Schedule A?  Do the taxes they gave us at closing to get current count as income or offset the prop tax payment?

Thx

A:

Whether any or all of the gain on your home sale is taxable will depend on a number of factors that you need to review with your own personal professional tax advisor.

To get yourself up to speed on the rules, you should check out this article on the rules for home sales. 

You will see that both your age and your plans to buy a new home are completely irrelevant to the taxability issue.

Settlement statements from both property purchases and sales are filled with tax deductible items, such as loan costs and property taxes.  This is why any good professional tax advisor will request that you supply him/her with copies of those statements.  S/he will know who to report the prorated taxes.

I hope this helps.  Good luck.

Kerry Kerstetter

Follow-Up:

Thx for the quick response!