Blog posted On March 03, 2022
When you sell your home, you will likely come out with a profit. While most of the profit is yours, part of it will go to Uncle Sam. This is a capital gains tax. To make sure you don’t give the government too much of your profit, follow these steps when filing your capital gains.
Before you get started on your Schedule D Form (used to file your capital gains), you must fill out a Form 8949. Form 8949 has two parts: Part I for short-term assets and Part II for long-term assets. A short-term asset is one that was held for less than one year. A long-term asset is one held for longer than one year. Once you fill out the appropriate part of Form 8949, you can transfer the information to your Schedule D.
A Schedule D is a two-page IRS document that helps you report and calculate your gains. On your Schedule D, you will be able to fill out important information about your home sale including:
Long term assets benefit from a lower tax rate, while short-term assets generally cost more in taxes.
After you detail your transactions in parts one and two of Schedule D, you will need to combine your purchase and sale information and calculate your gains or losses. Although you likely will not see a net loss on your sale, if you do, don’t fret. While it might not be great news for investing, it can help offset some of your regular income and reduce the taxes you owe. If you calculate a gain, you will be directed to a separate worksheet – either the Qualified Dividends and Capital Gain Tax worksheet or the Schedule D Tax worksheet. Both can be found in the Form 1040 instructions booklet. These will help you determine the appropriate tax level for your gains.
Though you can fill out all of this paperwork on your own, it might be a good idea to go over it with a tax professional. Mistakes happen, but when it comes to taxes, it’s better to avoid them if possible.
If you are looking for tax professional recommendations, let us know. If you need help finding out your sales price or purchase price, we would be happy to help.