The Internal Revenue Service does not distinguish who must file a tax return based upon the purchase or sale of a home. Single filers who earned more than $8950 must file a federal income tax return. Individuals filing as head of household may make up to $11,500 before filing a tax return. Married couples whose combined income is $17,900 or less do not have to file a tax return. Individuals and couples who are over 65 years of age enjoy a higher income threshold before being required to file an income tax return. However, home ownership provides many tax benefits, making filing beneficial for most Americans.
Tax Deductions
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Most Americans finance their homes with at least one mortgage. Interest paid on a mortgage loan is tax-deductible in most cases. If the filers itemize their deductions they may be choose to not pay tax on the interest paid to a mortgage lender. Additionally, buying and selling a home may result in mortgage points having been paid which may also be deductible from the annual income. If the homeowners made enough money to require an income tax filing, they may use these deductions to their benefit.
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Capital Gains
Homeowners who sell their primary residence do not pay taxes on the appreciation in the home up to $250,000 for a single filer or $500,000 for married filers. The IRS takes the cost of the home when purchased plus the cost of any improvements and subtracts it from the sales price of a home when sold, if this amount is below the threshold, no taxes are required. The IRS taxes any amounts exceeding the thresholds as capital gains. This is not a one-time deduction as long as the homeowners lived in the home for two out of the most recent five years they qualify.
1031 Exchange
Properties other than primary residences are subject to capital gains tax when sold. Homeowners may choose to use a 1031 exchange administrator if they are selling an investment property and purchasing another like kind investment property. The IRS allows homeowners to defer the taxes due on capital gains as long as the funds are handled in accordance to the 1031 exchange laws. If all of the 1031 exchange criteria are not met, the homeowner's taxes must report the capital gains earned on the sale of the home.
Rental Income
Homeowners who own rental properties usually disclose rental property income on schedule E of the 1040 tax returns. Rental income must be disclosed to the IRS as it is taxable income, even if a rental property is sold during the year.