(NEXSTAR) – Are you working on your taxes in a different home than you were in last year? That could have an impact on your filings.
The housing market remained hot through 2021 – existing-home sales totaled 6.12 million in the U.S., according to the National Association of Realtors. That’s an increase of 8.5% from 2020 and the highest level since 2006.
In most cases, when you buy a house, the way your taxes are filed fundamentally changes, according to Mark Steber, chief tax information officer for Jackson Hewitt Tax Services.
“For most Americans, you move out of the simplified standard deduction category,” Steber explains. Instead, you become an itemized taxpayer. This is “a more complicated return,” Steber continues, but “arguably a better situation for many Americans who incur those expenses.”
While there are a number of tax breaks you can receive for purchasing a house, one of the most beneficial is usually deducting mortgage interest. That information can be found on Form 1098 as long as you received $600 or more in a year, explains Lisa Greene-Lewis, a CPA and tax expert with TurboTax.
You’ll also be able to deduct local property taxes and mortgage insurance premiums you’ve paid during the year.
“Your taxes get a lot more complicated when you buy a home,” Steber adds.
Selling a home doesn’t necessarily make your taxes any easier, either. If you’ve lived in your house long enough, though, you could catch a break on the profit from the sale.
First, yes, you usually do need to report if you sold a home on your tax return. According to TurboTax, if you received a Form 1099-S or if you don’t meet the requirements for excluding the gain on the sale of your home (see below), you’ll need to report the sale.
As Steber and Lewis explain, you could have up to $250,000 (if you’re single) or $500,000 (if you’re married and filing jointly) of your gain be tax-free if certain conditions are met. To qualify, the home has to have been your primary residence for at least two of the five years before the sale.
If you sell for a loss, you can’t take this deduction. If your profit from the sale exceeds either of the above limits, the excess will have to be reported as a capital gain. There are also some exclusions to the two-out-of-five years requirement – examples include if you have to move “early” because of a change of work or health, or other unforeseen circumstances.
Ultimately, if you bought or sold a home in 2021, and aren’t a tax pro yourself, both Steber and Lewis recommend speaking with an expert before filing your taxes. You can also review the IRS’s publication about tax information for homeowners here.