Taxes and Selling Your Home

Homeownership and taxes:
things taxpayers should consider
when selling a house

Right now, the housing market is as hot as it has been in years. Inventory is low and demand is high. In some areas, homeowners are receiving multiple offers at or above the asking price. Homes are also selling “as is” or “with no repairs.” In some instances, buyers are taking huge risks and making offers on homes “sight unseen” or foregoing inspections. No one can predict how long this trend will last as many factors influence the housing market.

However, it is important to understand how selling your home may affect your tax return. When filing your taxes, you may qualify to exclude from your income all or part of any gain from the sale.

Here are some key things you should consider when selling your home:

Ownership and Use

To claim the exclusion, you must meet ownership and use tests. During a five-year period ending on the date of the sale, you must have owned the home and lived in it as your main home for at least two years.

Gains

If you sell your main home and have a gain from the sale, you may be able to exclude up to $250,000 of that gain from your income. If you file a joint return with your spouse, you may be able to exclude up to $500,000. You do not need to report the sale on your tax return if you are excluding all the gain.

Losses

If you experience a loss when your main home sells for less than what you paid for it, this loss is not deductible.

Multiple Homes

If you own more than one home, you can only exclude the gain on the sale of your main home. You must pay taxes on the gain from selling any other home.

Reported Sale

Taxpayers who do not qualify to exclude all the taxable gain from their income must report the gain from the sale of their home when they file their tax returns. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return.

You must report the sale on your tax return even if you have no taxable gain if you received Form 1099-S, Proceeds from Real Estate Transactions.

Possible Exceptions

There are exceptions to these rules for some individuals including persons with a disability, certain members of the military, intelligence community, and Peace Corps workers.

Worksheets

Worksheets included in Publication 523, Selling Your Home, can help you figure the adjusted basis of the home sold, the gain or loss on the sale, and the excluded gain on the sale.

A Final Note

When buying or selling a home, it is wise to engage the services of a real estate professional. For tax questions regarding the sale of your home, contact your tax professional.

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