Address taxes before estimating proceeds
A home's taxable gain is not simply the sale price minus the original purchase price. IRS rules account for adjusted basis, qualifying improvements, certain selling expenses, and other facts. Qualifying sellers may be able to exclude some or all of the gain on a main-home sale; rental or business use and a shorter ownership history can change the result.
Real estate agents do not determine a seller's tax liability. The result depends on ownership history, use of the property, improvements, other income, and current law. Penn | Ewing can identify relevant property records for review with a CPA.
Federal and Michigan rules
The federal Section 121 exclusion allows qualifying sellers to exclude part of the gain on a primary residence. To qualify, you generally must have owned and used the home as your main home for at least two of the five years before the sale. The exact exclusion amounts and eligibility rules are in IRS Publication 523.
Michigan individual income-tax calculations begin with federal adjusted gross income and then apply state adjustments. A tax professional can confirm how a taxable home-sale gain, the current state rate, and any Michigan adjustments apply for the relevant year.
Rental or business use and depreciation allowed or allowable can change the calculation and reporting. Publication 523 contains separate worksheets and rules for those facts, so the closing statement alone is not enough to determine taxable gain.
Records to gather before you list
- The original settlement statement from when you bought the home.
- Receipts and permits for capital improvements, not routine repairs.
- Documentation of any rental use or home-office depreciation.
- Records from any previous sales of the property if you inherited or converted it.
- Your most recent tax return, especially if you have claimed related deductions.
Property taxes are a separate calculation
Capital gains are one piece of the tax picture. Annual property taxes in Michigan work on a separate schedule, and the seller's current bill is not always what the buyer will pay. See our guide to property taxes for how taxable value, millage, and uncapping work in Washtenaw County.