The gains generated by the sale of a primary residence can be significant, but this income is not subject to federal income tax in many situations. Georgia residents may qualify for this exclusion by establishing ownership and use. This is done by establishing that they have owned the property in question and used it as their primary residence for at least two of the five years preceding the sale.
When ownership and use requirements have been met, individual filers may exclude up to $250,000 of the gain from the sale of their primary residences from their federal income tax returns. Those who file joint returns may exclude up to $500,000, and property sales need not be disclosed at all when the amount gained is less than the applicable exclusion. Reporting is also unnecessary when homes were sold for less than their original purchase price. However, property sales that generate gains must be reported to the IRS when homeowners choose not to claim the primary residence exclusion.
Only gains earned on the sale of a primary residence qualify for the exemption, and capital gains tax must generally be paid when any other homes are sold for a profit. Taxpayers may also be able to deduct any moving expenses related to their jobs. There are exceptions to these rules for individuals in certain occupations. These occupations include peace officers, certain members of the armed forces and intelligence community and Peace Corps workers.
While the Internal Revenue Code provides several generous exclusions, failing to meet all of the necessary requirements or omitting required information from a federal tax return can have severe consequences. The prospect of facing an IRS audit can be a daunting one for taxpayers, but attorneys with experience in this area may be able to calm these fears by explaining options such as installment agreements and offers in compromise should amounts end up being owed.