Tax Implications of selling your Waterford home

The good news is that most people selling their Waterford home they live in owe the tax man nothing. Many home sellers mistakenly believe they will owe taxes if their Waterford home sells for more than they bought it for. If you are already thinking... "What will I owe to Uncle Sam for taxes when I sell my Waterford Home?"  you are a smart home seller. 
Here are the tax rules when selling your home.  The general rule is that if you sell your primary residence,(no matter what city in Michigan) you typically can exclude a gain of as much as $500,000 if you're married and filing a joint return with your spouse (or $250,000 if you're single or married filing separately) and meet certain conditions.  These conditions are mainly about you living in your home as a principal residence.
To be eligible for the full exclusion, you typically must have owned the home -- and lived in it as your principal residence -- for at least two of the five years prior to the sale. These exclusion amounts aren't indexed for inflation. (When calculating your cost basis, don't forget to include additions and other "improvements," such as a new roof, deck or heating system. However, this subject -- and other adjustments you may need to make -- can be tricky. For details, see IRS Publication 523.)

Remember this is not a one time exclusion.  You can do this every two years if you meet the rules and guidelines.  In my years of experience I have very seldom seen anybody have to pay tax when they sell their home.  Usually it is homes that are over a million dollars where there is room to appreciate.

Remember this rule is only for your principal residence.  You cannot use this rule if you have a Waterford lakefront home as a second home, a vacation home, or a rental property.  If it is an investment property or a second home you are going to owe taxes if the sales price is more than you paid for it (minus improvement costs)

Remember also the $500,000 exclusion is only for married couples filing jointly.  Otherwise it is $250,000 for single people.

There are some circumstances that the allow you to take the exclusion if you have not lived in the house for two years. And what are these "unforeseen circumstances"? Congress didn't define them in the 1997 law. But Treasury officials later issued detailed regulations offering numerous examples. Among them: divorce or a legal separation, multiple births from the same pregnancy, or the loss of your job. You may even qualify for a reduced exclusion if you or your spouse changes jobs and takes a pay cut that results in an inability to pay housing costs and reasonable basic living expenses.

Let's say you bought your Waterford home 3 years ago, you lived in it for two years,  you are married filing jointly, and paid $260,000 for it.  It went up in value to $640,000.  (What an increase)  You do not owe any capital gains on it! 
I hope this page helped you understand the tax implications of selling your Waterford home.

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