Tax Tip: Tips to Keep in Mind on Income Taxes and Selling a Home

September 13th, 2017

picHomeowners may qualify to exclude from their income all or part of any gain from the sale of their main home.

Below are tips to keep in mind when selling a home:

Ownership and Use. To claim the exclusion, the homeowner must meet the ownership and use tests. This means that during the five-year period ending on the date of the sale, the homeowner must have:

•    Owned the home for at least two years
•    Lived in the home as their main home for at least two years

Gain.  If there is a gain from the sale of a main home, the homeowner may be able to exclude up to $250,000 of the gain from income or $500,000 on a joint return in most cases.

Loss.  The loss from the sale of a main home that sells for lower than purchased is not deductible.

Reporting a Sale.  Reporting the sale of a home on a tax return is required if all or part of the gain is not excludable. A sale must also be reported on a tax return if the taxpayer chooses not to claim the exclusion or receives a Form 1099-S, Proceeds from Real Estate Transactions. However, we always recommend that you keep all documentation used to calculate the gain or loss.

Possible Exceptions.  There are exceptions to the rules above for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others. More information is available in Publication 523, Selling Your Home.

Worksheets.  Worksheets are included in Publication 523, Selling Your Home, which will help you figure the:
•    Adjusted basis of the home sold
•    Gain (or loss) on the sale
•    Gain that can be excluded

Items to Keep In Mind:

•    Taxpayers who own more than one home can only exclude the gain on the sale of their main home. Taxes must paid on the gain from selling any other home.
•    Taxpayers who used the first-time homebuyer credit to purchase their home have special rules that apply to the sale. For more on those rules, see Publication 523. Use the First Time Homebuyer Credit Account Look-up to get account information such as the total amount of your credit or your repayment amount.
•    Work-related moving expenses might be deductible, see Publication 521, Moving Expenses.
•    Taxpayers moving after the sale of their home should update their address with the IRS and the U.S. Postal Service by filing Form 8822, Change of Address.
•    Taxpayers who purchased health coverage through the Health Insurance Marketplace should notify the Marketplace when moving out of the area covered by the current Marketplace plan.

Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.

Additional Resources:

•    Tax Topic 701, Sale of Your Home
•    Tax Topic 703, Basis of Assets
•    Tax Topic 611, Repayment of the First-Time Homebuyer Credit
•    IRS Tax Map, Selling Your Home 
IRS YouTube Videos:
•    Moving Expenses– English | Spanish | ASL
•    First Time Homebuyers Credit Account Look-Up Tool –  English | Spanish | ASL

Let us know if you have any questions.

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