Traps can lurk in tax savings on real estate

Traps can lurk in tax savings on real estate

Tax time provides an opportunity to cash in many of the rewards of dabbling in last year’s red-hot real estate market — but there are numerous tax traps if you sold a home, refinanced your mortgage or bought an investment property in 2005.

Although the rules are too twisted to explain fully, here’s a brief primer of four common real estate transactions that could leave you vulnerable in an audit:

If you sold your home: Most sellers can cash in one of the biggest perks in the tax code. Couples can sell their home for a $500,000 profit without paying a cent of income tax. Single taxpayers can pocket $250,000.