12 Feb I can’t afford N.J. How will my home sale be taxed?
Q. I became disabled as a result of a car accident and I’m collecting Social Security disability. Currently I have a home and can pay the mortgage, but what would happen to my taxes if I sold and made a profit? I just can’t afford New Jersey anymore and I need to move.
— Seller, maybe
A. We know times are tough for so many people.
And you’re smart to ask about taxes before you sell your home.
The profit on the sale of your personal residence is only taxable if it exceeds $250,000 for an individual or $500,000 if you are married and filing a joint tax return, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.
That holds for both federal and New Jersey.
“The basis is calculated by adding the purchase price, the closing costs on both the purchase and sale, and any improvements made to the home,” he said. “Routine maintenance does not count, but fixing up expenses specifically paid in order to sell the house are allowable.”
When you sell the home, the buyer’s attorney or the title company, depending on which does the closing, is supposed to issue Form 1099-S, Karu said. It will show the selling price.
“If you do not file a return, there is a likelihood that you will receive a letter from the Internal Revenue Service proposing a tax based on the sale,” he said. “A letter in response with copies of the closing statements from both the purchase and sale and an explanation that it was the sale of a personal residence would be the necessary response.”
Whether Social Security disability benefits are taxed depends on your total income.
“You will avoid taxes if your total income—which is determined by adding one-half of your disability benefits to all other sources of income, including tax-exempt interest—is below the threshold set by the Internal Revenue Service (IRS),” the IRS website says. “If you are single, the threshold amount is currently $25,000. If you are married and file jointly, it is $32,000.”
New Jersey does not tax Social Security, Karu said, so that won’t be an issue for you.
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This story was originally published on Feb. 12, 2021.
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