Buying or Selling: An Overview
Much of what you'd owe on your home at the time of sale has to do with the amount of time you spent living in it and the amount of money you made on it. If you lived there for at least two out of five years prior to the selling of your home, then you can count on up to $250,000 of the profit being tax-free. During that primary two years, you need to have used it as your primary place of residence or it doesn't qualify for that type of a tax break. Even if you happened to live elsewhere after that two year time period and rented it out to someone else, you still qualify for that initial profit from the sale of your home without any taxes being taken out.
Married and Filing Jointly: What Can You Claim?
If you were married and filing jointly, you can claim a bigger tax-free profit from the sale of your home. The same basic rules still apply, however. This means that either you or your partner need to have lived within that same house and owned it for at least two of the five years prior to its final sale. Once those requirements have been fulfilled, then you both can claim up to $500,000 without the burden of taxes, which is something that could be put towards a down payment on another home if you wanted to.
Special Circumstances May Apply
There are cases where you may not meet any of the above requirements, and that's just fine. The IRS can consider other ways to get you your tax exclusion profit, even if it means that it will be at a reduced rate. This simply means that you won't be able to claim as great an amount as you'd originally planned or hoped for. Making the necessary financial adjustments are critical to accommodating a smaller amount of tax-free profit from the sale of your home. This can be done in cases where you meet certain special requirements, such as a change in employment or employment status, a sudden illness or unexpected injury, or the birth of more than one baby at a single time, such as having twins or triplets. These cases may require changes in your location that warrant covering the high cost of normal moving expenses that the money could cover.
The Effects of Missing Tax Returns on Renting
When renting, the requirements may not be quite as heavy. There may be cases of some landlords who do require you to bring in copies of tax returns going back at least two years, but the main concern is steady income. Whether you work full-time, part-time, or get any form of disability income, as long as you can meet at least the basic income requirements and pass a background check that involves a close look into your credit history, then you should be able to rent from almost any landlord out there.
Can Unpaid Taxes Stop Your From Buying a New Home?
Most lenders looking for a buyer understand that there are not many who come with a perfect credit history. In fact, most expenses, whether they are credit card debts or student loans, can happen to any one of us. Life often gets in the way, and with it, comes the money we need to spend in order to survive. Other concerns such as the high cost of medical care, hospitalization, and doctor's visits can impact a credit rating, but shouldn't stop you from buying a home as long as your debt-to-income ratio is well within limits.
Unpaid taxes pose a far different picture, however. The IRS can put a levy on your property in order to collect what's due to the federal government. This means that they can levy a new home purchase, and that's all the more reason to keep up your payments as they are due. Plus, this can have an impact on your credit rating if you fail to keep your payment arrangements.
Paying Off Your Back Taxes: The Next Step
Taxes are one of the many worries in life that can never be fully expunged. As long as you have an income, you will face some form of government taxation that can impact you if you don't have enough withheld from earnings. It pays to keep on top of what your income level is and how it affects your ability to pay. The higher your earnings, the more you're expected to contribute in taxes. It's that simple.
Mortgage lenders will look at your taxes when they see your return and let you know if you qualify to buy your first home or not. Active and retired military may still be able to get a VA loan even with some unpaid back taxes looming on their record, but much depends on the state and local laws in the area.
Why You Should Hire a Qualified Tax Professional
A qualified tax professional should have a CPA license and help you resolve your tax burden by helping you to negotiate your back taxes into digestible monthly payments. They can talk to the IRS for you and give you an honest assessment of what you can reasonably expect in the coming months. They may also be able to negotiate an a href="https://www.taxcompass.org/irs-payment-plan">IRS payment plan on your behalf.
Banks and mortgage lenders will look at those who owe as being in the high risk category. As a result, your chances of getting your first home loan will be minimal at best. Back taxes that accrue, along with mounting interest, is something that has a greater impact on your overall debt to income ratio, which is another detail that mortgage lenders and real estate brokers cannot ignore when selling a house. Your CPA can intervene to help you negotiate tax payments that are reasonable, affordable, and can be extended for a period of up to five years.
With back taxes, you will have a minimum amount that's due by a specific date that the IRS will set up with you every month. But it works like a loan in that fees and penalties will add up. Even with the smallest monthly minimum owed each month, paying a little above it will wipe out what you owe and give you a new start in life.