Preface: “Home isn’t a place, it is a feeling.” – Anonymous
Tips for Individuals Selling Their Home
The Internal Revenue Service has some important information to share with individuals who have sold or are about to sell their home. If you have a taxable gain from the sale of your main home, you may qualify to exclude all or part of that taxable gain from your income. Here are ten tax planning tips to keep foremost in mind when selling your home.
- In general, you are eligible to exclude the taxable gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale (partial exclusions for shorter periods are allowed under certain extenuating circumstances).
- If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
- You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
- A surviving spouse who qualifies for the exclusion may exclude up to $500,000 of gain on the sale of a principal residence if the sale occurs not later than two years after the date of his spouse’s death and he or she has not remarried as of the date of sale.
- If you can exclude all of the gain, but receive a Form 1099-S, you must report the sale on your tax return.
- If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
- You cannot deduct a loss from the sale of your main home.
- Generally, taxpayers must report forgiven or canceled debt as income on their tax return. This includes people who had a mortgage workout, foreclosure, or other canceled mortgage debt on their home. Taxpayers who had debt discharged after December 31, 2017, can’t exclude it from income as qualified principal residence indebtedness unless a written agreement for the debt forgiveness was in place before January 1, 2018.
- If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other secondary home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
- When you move from your home address, be sure to update your mailing address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.