Did you buy or sell Northern Virginia Real Estate this year? Keep your ALTA!
When you completed the sale of your Northern Virginia home, the settlement company provided you with an ALTA Settlement Statement along with a Closing Disclosure. These documents include all of the costs, credits, and debits involved in your real estate transaction. When you file your taxes for the year, these documents can include important tax deductions. It will be crucial to let your tax preparer know that you bought or sold real estate, and you’ll want to provide these documents to them.
Current year tax deductions
On either a purchase or a sale, it’s possible that you may have paid pro-rated property taxes at closing. And if you purchased, you likely paid pro-rated interest for the current month. If you itemize your taxes, both of these line items could be deductible.
Reducing capital gains taxes
When you sell a home, the gains on the real estate sale could be subject to capital gains taxes. These capital gains are calculated based on your net sales proceeds less your cost basis. Know that cost basis includes the home’s purchase price, plus transaction costs involved in the purchase, plus improvements you’ve made to the home during the ownership period. Sales proceeds are reduced by the transaction costs involved in the sale. Your tax preparer can help calculate your capital gains using the ALTA statements from your home purchase and sale.
Know that within certain guidelines, individuals who own a home as their primary residence can forego taxes on the first $250,000 of capital gains. For married couples, this number increases to $500,000. For a home to be classified as a primary residence, the owner must have lived there during the past 2 years or 3 of the past 5 years. If capital gains exceed these thresholds, the excess amount is subject to capital gains tax, so being sure to capture all transaction costs on purchase and sale can help to minimize the excess gains (and the taxes on them.)
