Income Tax

These laws deal with tax payments and deductions for both real estate professionals and home owners.

February 8, 2012

TransactionPre-Transaction Return to Index Page Income Tax Mortgage

 

   IRS Schedule C: Profit or Loss from Business

Summary:
Independent contractors are to track their “reasonable and ordinary” expenses related to their business, including costs for marketing and selling a property, for reporting on Schedule C of their federal tax return to deduct those costs from their income.

Regulator:
U.S. Internal Revenue Service

Original statutory authority:
U.S. Internal Revenue Code (IRC), Section 162 (a)

Penalties:
Penalty fees as assessed by the IRS

More information:
NAR IRS information reporting summary

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

 

   Mortgage Interest Deduction (MID)

Summary:
The mortgage interest deduction can influence household home purchase decisions by permitting home owners to reduce their federally taxable income by the amount of interest paid on the loan which is secured by their home. Limited to home loan amounts of up to $1 million or $100,000 in equity for home equity loans.

Original statutory authority:
26 U.S.C. § 163(h) of the Internal Revenue Code

Regulator:
Internal Revenue Service

Penalties:
Criminal penalties can apply in cases involving fraud. 

More information:
IRS Publication 936: Home Mortgage Interest Deduction
NAR MID Resource Page

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

 

   Capital Gains Exclusion on Sale of Principle Residence

Summary:
Taxpayers can exclude up to $250,000 ($500,000 for married couples filing jointly) of capital gains on the sale of their primary home. To be eligible, taxpayers must have lived in the home as their primary residence for two of the five years before the date of sale.

Original statutory authority:
Taxpayer Relief Act of 1997 (Public Law 105-34, H.R. 2014, 111 Stat. 787)

Regulator:
Internal Revenue Service

Penalties:
Criminal penalties can apply in cases involving fraud. 

More information:
“Excluding Your Gain,” from IRS Publication 523: Selling Your Home
NAR: Capital Gains Exclusion on Sale of Principle Residence

This summary is not a comprehensive analysis of how the law applies to you.  Consult a qualified real estate attorney to determine how the federal law and laws in your state impact you in this area.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.