The Tax Implications of an Arizona Home Sale

Buying or selling a home can be an overwhelming process. The logistical, legal, and financial consequences of a home sale can be confusing - even for an experienced homeowner or home buyer.

In addition to all these challenges, there are tax implications for both buyers and sellers. It is important to be aware of these implications so that they do not create unnecessary hassles during a real estate transaction. An Arizona tax attorney can help both buyers and sellers understand and plan for the tax consequences of any real estate transaction.

Tax Implications for Sellers

In 2009, Arizona passed a Proposition 100 (also known as the Protect Our Homes Act), signed by then-Governor Janet Napolitano. This law makes Arizona home sellers exempt from paying a transfer tax.

However, federal taxes may apply to capital gains. This means that the amount of money you profit from on a house can be taxed, but you may also qualify for an exemption of up to $250,000 ($500,000 if you're a married couple filing jointly) if you meet the ownership and use test within a five-year period under the following requirements:

• You owned the home for at least two years before selling.
• You lived in the home for at least two years.
• You haven't excluded the gain from another home sale.

Tax Implications for Buyers

Home buyers do not, of course, have to pay taxes on the purchase of the home. But home buyers should be prepared for fewer tax credits than have been available in the past. For example, purchasers who bought their first homes in 2008, 2009 or 2010 benefited from a first-time home buyers' tax credit. While the Internal Revenue Service still maintains information about this tax credit, it is no longer available to first-time home buyers. In fact, new homeowners will find very few tax credits beyond the mortgage interest credit. The IRS explains how this credit can be used to help lower-income purchasers afford home ownership.

Because there are very few tax credits available to home buyers, it is important that they be prepared to pay all tax liabilities without the benefit of such credits. A tax attorney, accountant, or other tax professional can help home buyers explore other financial options for reducing tax liability and affording home ownership without tax credits.

Both buyers and sellers of real estate must be prepared for all tax and financial consequences of the transaction. An Arizona tax attorney can help home sellers and buyers prepare for these consequences in order to ensure a successful transaction without unpleasant financial surprises at the end of the tax year. Contact Brown, Naegle, Crider & Jensen LLC today to discuss your options.