"Door County Real Estate" by: Kevin Nordahl, REALTOR®

The Real Estate Tax Credit "Keep Your Money"

While we were all cozy, happy and enjoying our homes in 1997 our federal government was enacting a law (Internal Revenue Code 121) that allows us to keep most of the profit when selling our homes. That’s enough to make anyone feel even cozier still when that special time to call a REALTOR® approaches. But who qualifies?

Basically, the law states that you can claim up to $250,000 tax exempt on profit. That tax exempt credit on the profit of your home grows to up to $500,000 for couples who file jointly. So let’s say you have a $100,000 mortgage note with the bank and you sell your home for $350,000. You don’t own the government a single penny on the $250,000 profit you made. This is only applicable if you have lived in the home for a total of two of the five years prior to its sale.

That is not to say you have to own your home for five years as commonly believed. You must reside in the home for at least two years in a five year time period prior to its sale in order to qualify. It is also not necessary that you live in the home at the time you decide to sell. In fact your residing in the home need not even be continuous in a 24 month time period. As long as you occupied it for at least 24 months total you can turn around and sell under IRC 121. You can even rent it for three of the five years.

This is a great deal for crafty homeowners who like fixer-uppers and are willing to live in their investment before selling. The age of the home or its owner is not a factor to qualify for this tax break, which may be taken continually every two years. The law is governed in all fifty states regardless of any “second home status” you may have ascribed to your property in another state.

So you’re reading this and thinking “Darn. Why didn’t I know this last year when I sold my home?” Relax there ace. You can still take a tax credit by amending your tax return as long as the sale occurred in the last three years. That’s what the five year timeframe is all about. How cool is that?

If you have considered being a serial home seller it is best to consult with a trained real estate professional, preferably one who has been in fixit-up mode themselves. Please feel free to contact me to get the facts.

Kevin Nordahl is a life-long resident of Door County, a REALTORŪ and a member of the Door County MLS. He is a Past President of the Door County Board of REALTORS® and a Senior Sales Consultant at Coldwell Banker Door County Horizons in Fish Creek. He may be reached online at knordahl@doorcountyrealestate.com or by phone at (920) 493-4004.

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