Gain Exclusion from Selling Your Home

Selling your home can have tax implications that you must report on your income tax return. Read on to learn more about these tax implications and how they may affect you.

Gain Exclusion from Income Tax when Selling Your Home

The IRS recognizes the importance of home ownership for many Americans. Therefore, the Internal Revenue Code provides for an exclusion of up to a $250,000 gain (or up to a $500,000 gain for those who are married filing jointly) for homeowners who sell their home and qualify.

To qualify for the exclusion, the type of home sold does not matter. Therefore, the homeowner can benefit from the exclusion for the sale of a single-family home, apartment, condominium, houseboat, or mobile home.

A home sale can qualify from the exclusion if all of the following are true:

  • You were the owner of the home and you used it as your primary residence for at least two of the five years preceding the date of the sale.
  • You did not obtain the home through use of a like-kind exchange during the five years preceding the date of the sale.
  • You did not claim an exclusion related to the sale of a home during the two-year period preceding the date of the sale

If only some of the above exclusions are true, your home sale may still qualify for the gain exclusion if you pass the following eligibility test.

  1. Automatic Disqualification

Your home sale does not qualify for the gain exclusion if any of the following are true:

  • You acquired the property through a like-kind exchange during the previous five years.
  • You are subject to the expatriate tax.
  1. Ownership

You owned the home for at least two years during the previous five years leading up to the date of the sale.

  1. Residence

You used the home as your primary residence for at least two years during the previous five years leading up to the date of the sale.

  1. Look-Back

You did not exclude a gain from the sale of a home on your income tax return during the previous two years leading up to the date of the sale.

 

If your home sale meets the above eligibility requirements, it qualifies for the gain exclusion.

Calculating Gain or Loss

The gain or loss on the sale of your home is calculated using the following formula:

Selling Price – Selling Expenses = Amount Realized

Amount Realized – Adjusted Basis = Gain or Loss

Selling Price – The amount paid to you for your home

Selling Expenses – Expenses incurred by you for the sale of your home

Adjusted Basis – The amount you paid to originally purchase your home, plus the cost of improvements and certain settlement fees and closing costs

Reporting Gain or Loss on Home Sale

You must report the gain on the sale of your home if any of the following are true:

  • You have a gain on your home and do not qualify for the exclusion.
  • You received a Form 1099-S.
  • You want to report the gain on the sale of your home even though you qualify for an exclusion. You may choose to report such a gain in the event you plan to sell another home in the next two years for which you expect to have a larger gain that you would like exclude.

Who can help if I have other questions about the effect of my home sale on my tax return?

A tax attorney can help answer questions about your tax return. Many tax attorneys go to school to learn specifically how to prepare tax returns. They will be able to help answer any questions you have about your tax return.

You can call the telephone number at the top of this site or fill out the form below to get answers to your tax return questions today.

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by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.