Is the sale of a home taxed differently if the seller carries the note? Or is it done through conventional means?
Your question is not clear. There are two different types of taxes that come into play in the sale of a home. First, at settlement, you pay a transfer tax to the state. Second, when you complete your federal income tax return (Form 1040) for the year in which you sell the house, you may be liable for a tax on the gain from the sale of the house. The federal tax is dependent on several factors, such as was there a gain for federal purposes? If you lived in the house for two of the past five years, you are entitled to a $250,000 exclusion ($500,000 if married filing jointly).
Depending on the basis of the home, sometimes there is no gain. Also, depending on the tax bracket that applies to you, the capital gain rate could potentially be zero.
In either situation, whether a lending institution holds the note or it is held privately does not factor into the taxing event.
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Answered by: Rosemary Lamaestra, CPA, CFE, is a manager with RLB Accountants in Allentown, Pa.