Is a home sale taxed differently if the seller carries the note?

by Rosemary Lamaestra, CPA, CFE | Jun 29, 2018

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. 

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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