Now is when the housing market heats up, as home sales generally peak in May and June. According to an ATTOM Data Solutions report, in the United States, June 28 is the best single day to sell your home, with an average price premium of over 9% for homes sold on that day.
Even if you don’t sell your home within that window, you may still be able to take advantage of a tax break and reduce your freelance tax burden this tax year. This is because the IRS allows gains made on a home sale to be excluded in all or part from your taxable income if these rules are followed:
- Home ownership and use. In order to qualify for the exclusion, you must have owned the home and lived in it as your main home for at least two years during a five-year period ending on the date of the sale.
- Thresholds for excluding gains. If you sell your primary residence and have a gain from the sale, you may be able to exclude up to $250,000 of that gain from your freelance income. If you file a joint return with your spouse, you may be able to exclude up to $500,000.
- Reporting gains on your tax return. If you are excluding all of the gain from your sale, you don’t need to report the sale on your tax return. If you aren’t excluding all of the gain or you are choosing not to claim the exclusion you must still report it on your tax return
- No deductions for losses. If you have the unfortunate situation of selling your primary residence for less than what you paid for it, you cannot deduct the loss from your taxes, unfortunately.
- Main residence only. If you happen to own more than one home, keep in mind you can only exclude the gain on the sale of your main home. You have to pay taxes on the gain from selling any other home.
- Mortgage debt must be reported. If your sale includes any forgiven or canceled mortgage debt, it must be reported as income on your tax return (including any mortgage workouts, foreclosures, or other canceled mortgage debts). In addition, if you had debt discharged after December 31, 2017, it can’t be excluded from your income unless you have a written agreement for the debt forgiveness dated before January 1, 2018.
Keep in mind that there are some exceptions to these rules for some people with disabilities and specific members of the military, intelligence community and Peace Corps workers. However, if you are selling a home at any time this year, be sure to use this tax break to lower your freelance tax burden!
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union* and a monthly email newsletter covering tax, accounting and business issues to freelancers on his website, www.cpaforfreelancers.com — which also features a new blog, how-to articles, and a comprehensive freelance tax guide.
*Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.