Section 01 of 06
1. The Primary Residence Exclusion
Qualifying for the primary residence exclusion in accordance with the IRS rules is possible in order to prevent capital gains taxation. This exclusion enables homeowners to exclude:
Up to $250,000 of capital gains if filing as a single taxpayer.
Up to $500,000 of capital gains if married and filing jointly.
The ownership and use test should be met to qualify:
The individual has owned and lived in the home as the primary residence for at least two of the last five years before the sale.
The exclusion applies only to a primary residence, not to rental or investment properties.
Section 02 of 06
2. Minimal or No Gain
There are factors that reduce taxable gains as outlined below:
Purchase Price & Sale Costs: The capital gain is calculated by subtracting the original purchase price as well as eligible expenses from the sale price.
Home Improvements: Costs for significant home upgrades like kitchen renovations and roof replacements alongside room additions might be added to the original purchase price and lower the taxable gain.
Section 03 of 06
3. 1031 Exchange (For Investment Properties)
A 1031 exchange can be leveraged to defer capital gains tax by reinvesting the proceeds into another qualifying property as detailed below:
The replacement property should be of equal or greater value than the sold property.
The transaction must adhere to IRS timelines including identifying a replacement property within 45 days and closing within 180 days.
Both properties should be investment or business properties (not primary residences).
Who is writing this
Guidance from a firm that files these every season
Wasserman Accounting has advised New Jersey individuals and businesses since 1993. The positions in this article are the ones we take on real returns.
Since 1993
30+ years in practice
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Section 04 of 06
4. Eligible Deductions
The following deductions can be considered to lower the taxable amount:
Real estate agent commissions
Legal and closing fees
Title insurance
Necessary repairs before the sale
Section 05 of 06
5. Establishing NJ Residency Before Selling
If the individuals are residents at the time of the sale, they may avoid this withholding by establishing residency via:
A valid NJ driver’s license
Filing NJ state tax returns
Showing proof of address like utility bills or voter registration
Section 06 of 06
6. A Refund if Over-Taxed
If the amount withheld at closing surpasses the actual tax liability, a New Jersey Nonresident Income Tax Return (Form NJ-1040NR) can be filed to claim a refund.
If you are selling a home in New Jersey and need professional assistance on surrounding tax implications, CPA South Jersey is ready to present expert aid for tax planning and compliance.
