Selling Your Home? How a Sale Can Impact Your Taxes

Generally, any profits you earn are taxable. However, when you sell your home you may not have to pay taxes on the money you gain . . . it all depends on whether you fall within the qualifying guidelines. 

Here are 10 items to consider when selling your home:

1. You May Qualify for an Exclusion of Gain.  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main/primary home for at least two out of the five years before the date of sale.

2. Exceptions May Apply.  There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see IRS Publication 523, Selling Your Home.

3. The Exclusion Limit.  The most gain you can exclude from tax is $250,000. This limit is $500,000 for those filing joint returns. The Net Investment Income Tax will not apply to the excluded gain.

4. May Not Need to Report Sale.  If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.

5. When You Must Report the Sale.  You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Tax on IRS.gov.

6. Exclusion Frequency Limit.  Generally, you may exclude the gain from the sale of your main/primary home only once every two years. Some exceptions may apply to this rule.

7. Only Your Primary Home Qualifies.  If you own more than one home, you may only exclude the gain on the sale of your main/primary home. Your main/primary home usually is the home that you live in most of the time.

8. First-time Homebuyer Credit.  If you claimed the first-time homebuyer credit when you bought the home, special rules apply when you sell the home. For more on those rules, see Publication 523.

9. If You Sell Your Home at a Loss.  If you sell your primary home at a loss, you can’t deduct the loss on your tax return.  That's not a happy thing, but a lot less homeowners are selling at a loss than in years' past.

10. Report Your Address Change.  After you sell your home and move, don't forget to update your address with the IRS. To do this, file Form 8822, Change of Address. Mail it to the address listed on the form’s instructions. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.

This information is not intended to replace advice and guidance from your tax professional.  Always consult your tax professional before taking any tax-related financial actions.

Source:  IRS.gov