Congratulations! You sold your house! And in this market, no doubt made a mint. So now you’re probably wondering how does selling my house impact my taxes?
A gain on the sale of a home is the result of when the home sells for more than what was paid for it. When it comes to selling a home and filing your taxes, it’s important to know that there is a gain exclusion. It’s possible that one may be eligible to exclude all or a portion of the gain from their income. Some key items to keep in mind when selling a home include the following.
- Ownership and use of the home
To take part of the exclusion, you must have owned the home and lived in it for the last two years of a five-year period that ends on the date the home sells.
- Amount of the Gain
When you sell your primary residence and there is a gain, a taxpayer who files single can exclude up to $250,000 of that gain from their income. Married filing joint taxpayers, can exclude up to $500,000. When excluding the entire amount of the gain, homeowners need not to report the sale of the home on their tax return.
- Loss on the Sale
A loss on the sale of a home is the result of when the home sells for less than what was paid for it. This loss in nondeductible.
- More than one Home
If you own more than two homes, the gain on the primary residence can only be excluded. Taxes would have to be paid on the gain of the sale of any home other than the primary residence.
- Reporting the Sale
If the entire taxable gain cannot be excluded due to ineligibility, the sale of the home must be reported on the tax return. If the taxpayer decides not to claim the exclusion, then the taxable gain must be reported on the tax return. Homeowners who receive Form 1099-S because of the sale, must report the sale on their tax return even if there is no taxable gain. Form 1099-S reports Proceeds from Real Estate Transactions.
- Potential Exceptions
Persons with a disability, particular members of the military, intelligence community and Peace Corps workers are some of the individuals in which there are exceptions these rules.
Publication 523 specifies the tax rules when selling a home. Any worksheets included in this publication can assist taxpayers in figuring out the adjusted basis on the home being sold, the gain or loss on the sale, and the excluded gain from the sale.