Do you know that if you sell your home and make a profit, the gain may not be taxable? Anna and Jenny have
recently learned about this from their tax professional so now they are deliberating over the idea of selling their
15-years-old home. The fact that the profit, you make from selling your old home, is not taxable is just one key
tax rule that you should know.

Here are ten facts to keep in mind if you sell your home this year:

1. If you have a capital gain on the sale of your home, you may be able to exclude your gain from tax. This
rule may apply if you owned and used it as your main home for at least two (2) out of the five (5) years
before the date of sale. And if you moved out and started renting your residence, you may have complicated
rules to follow when you sell. Be sure to seek professional advice, these special rules can be complex.

2. There are exceptions to the ownership and use rules. Some exceptions apply to persons with a disability.
Some apply to certain members of the military and certain government and Peace Corps workers. For details
see Publication 523, Selling Your Home.

3. The most gain you can exclude is $250,000. This limit is $500,000 for joint returns. The Net Investment
Income Tax will not apply to the excluded gain.

4. If the gain is not taxable, you still need to report the sale to the IRS on your tax return, even if there is no tax
owed on the sale.

5. You must also report the sale on your tax return if you can’t exclude all or part of the gain. And you must
report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds
from Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the
Net Investment Income Tax on IRS.gov.

6. Generally, you can exclude the gain from the sale of your main home only once every two years.

7. If you own more than one home, you may only exclude the gain on the sale of your main home. Your main
home usually is the home that you live in most of the time. You can only have one principal residence at a
time.

8. If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale.
For more on those rules see Publication 523.

9. If you sell your main home (residence) at a loss, you can’t deduct it.

10. After you sell your home and move, be sure to give your new address to your tax preparer and the IRS. You
can send the IRS a completed Form 8822, Change of Address, to do this.

Reverse Mortgages

Reverse Mortgages are becoming more popular with the aging population. A reverse mortgage is a way for
senior citizens to take advantage of the equity in their home and still live somewhat comfortably. It’s the
opposite of a traditional mortgage.

With a traditional mortgage, you borrow money to purchase a home and then pay off the debt. With a reverse
mortgage, you receive loan proceeds as a lump-sum payout, an annuity, a line of credit, or a combination of the
three. 

But you make no mortgage payments if you reside in the property, but you are still responsible for annual property taxes

and homeowner’s insurance. The loan with any accrued interest comes due when you move out or pass away.

To qualify for reverse mortgages, you must be at least 62 years old and own the home outright (or have a
balance that can be paid off with the loan proceeds). How much you can borrow depends on your age, the
home’s market value, and interest rates.

As always, there is a downside to reverse mortgages. Closing costs can be very steep, as much as 5% of the
home’s value. In addition, borrowers may have to purchase mortgage insurance and they are still on the hook
for property taxes and homeowner’s insurance each year.

Federal Truth in Lending Laws requires lenders to provide information about interest rates, payment terms, and
other costs in writing to anyone who agrees to or enquires about a reverse mortgage.
The Federal government also requires interested homeowners to take a class conducted by Housing and Urban
Development (HUD) to learn all the rules of reverse mortgages. Your mortgage lender can give you more
information on the class. The class is free and can be taken online as well. You receive a Certificate of
Completion that goes to the lender to prove you have attended the class.

If you are interested, shop for a reverse mortgage just as you would for any other loan. Make sure the basic
terms of competing loans are comparable, and then go with the lowest price by comparing interest rates, upfront
fees, and other charges.

Where many seniors get in trouble, with reverse mortgages, is that they forget that they are individually
responsible for annual homeowner’s insurance and real estate taxes! When the mortgage company is paying it
with your mortgage payments, there is nothing to worry if they are paid, but when you take a reverse mortgage,
YOU are required to pay your insurance and taxes separately. The mortgage company will not do it for you!
Mortgage interest is only deductible if you are paying it with reverse mortgage. Unless you pay the interest,
there is no deduction for interest accumulated.

Here are some bullets to remember:
● Usually selling personal residence is tax free
● Exemption amount varies with marital status, work conditions and medical status
● Military and Government workers have preferential rules for gain exemption
● Gain exempted can be up to $500,000 for married and $250,000 for single taxpayers, as often as every two
years
● Reverse mortgages are a way to live on a home’s equity
● Must be at least 62 years old and own the home to qualify
● You must take a one-day class before getting a reverse mortgage

● No payments made until you move out or pass away
● Costs can be steep (upfront fees 5%, mortgage insurance premiums, interest rates) and you are still
responsible for property taxes and insurance
● Shop reverse mortgages like other loans
● Remember that the homeowner is responsible for paying the insurance and property taxes themselves (The
mortgage company does not pay it, for you.)
● Mortgage interest isn’t deductible unless you are paying it. Accumulating interest is not deductible.

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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