As a rule, all income you receive in the form of money, property, or services is taxable and must be reported on your income tax return – unless specifically excluded by US tax laws. Even though it feels like everything is taxable (!), below are 5 REAL ESTATE transactions tax-free!
1/ Sale of your primary residence
If you sell your home for a profit, the first $250K (single) / $500K (married filing jointly) of your gain are tax free. To qualify for this benefit, you must meet certain timing and ownership requirements (“Home sale exclusion”).
To read more on the home sale exclusion: https://www.irs.gov/taxtopics/tc701
2/ Rental for less than 15 days
If you rent your residence for a period shorter than 15 days in the year, the rent you collect is tax free (“minimal rental use”).
To read more on the minimum rental use: https://www.irs.gov/taxtopics/tc415
3/ 1031 Exchange
If you sell a property and re-invest the funds to buy another property within a certain time frame, your gain will not be subject to tax at the time of the sale (“Like kind exchange“). To qualify for this preferential treatment, you will need to use a qualified intermediary who will hold the funds from the sale in escrow until you purchase the new property.
To read more on the Like-kind exchange: https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips
4/ Opportunity zone investment
If you sell real estate located in a distressed area, your gain will not be subject to tax at the time of the sale (deferred capital gain). To qualify for this preferential treatment, you will need to invest through a qualified fund (“Qualified opportunity fund ”).
To read more on the qualified opportunity fund: https://www.irs.gov/credits-deductions/businesses/opportunity-zones
5/ Capital gain
As a rule, if you sell real estate property for a higher price than you purchased it, you realize a capital gain that is taxable. However, if your taxable income is less than $41K (Single) / $83K (Married filing jointly) and you held the property for a year or longer, your capital gain will be taxed at 0% (long term capital gain tax rate).
To read more about capital gain tax rates: https://www.irs.gov/taxtopics/tc409
To read more about other tax-free income: 7 categories de revenus exoneres d’impot
To know more about other real estate tax benefits: https://kbfinancials.biz/real-estate-immobilier/
For assistance with your international tax needs, please contact Karine Bauer, EA, JD – HERE
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Updated: February 8th, 2023