Resources:
- IRS Tax Topic 701: Sale of Your Home
- IRS Publication 523: Selling Your Home
- Form 1099-S: Proceeds From Real Estate Transactions
Why YOU Should Care:
If you sell your main home, you may be able to exclude $250,000 of gain on the sale ($500,000 if you are married filing jointly) from your taxable income.
First, we must define the “gain” on the sale of your home. Simply put, it is the selling price of your home less selling expenses and adjusted basis. Selling expenses include commissions paid to real estate agents, advertising fees, and other expenses related to transferring title. Your initial basis depends on how the home first came into your possession. For most people, it is the price you paid when you purchased it. If your home was an inheritance or other transfer, consult your tax adviser. This basis can then be increased or decreased by certain activities. See a full list here.
Qualifying for Exclusion
To qualify to exclude part of the gain on the sale of your main home, you must meet both the ownership test and the use test.
- Ownership Test – You owned the home for at least two of the past five years, and
- Use Test – You lived in the home as your main home for at least two of the past five years.
Special exceptions exist for the following taxpayers:
- Members of the Uniformed Services, Foreign Service, the intelligence community, and/or volunteers with the Peace Corps.
- Individuals with disabilities.
- Situations in which the main home was destroyed or condemned.
- Changes in location of employment.
- Certain medical situations.
More Than One Home
If you have more than one home, you may only exclude the gain from the sale of the home that is considered your main home. See this list of factors used to determine your main home.
